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Annual report / Central Arizona Project

Central Arizona Project annual report 2000

res lution
CAP
C E N T R A L
A R I Z O N A
P R O J E C T
A N N U A L
R E P O R T
H2000
C E N T R A L A R I Z O N A P R O J E C T
P.O. B O X 4 3 0 2 0
P H O E N I X, A R I Z O N A 8 5 0 8 0 - 3 0 2 0
( 6 2 3 ) - 8 6 9 - 2 3 3 3
w w w. c a p - a z . c o m
L E T T E R
C H A P T E R 1 0
C H A P T E R 1 1
C H A P T E R 1 2
F I N A N C I A L S
CONTENTS
P 01
P 02
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P 19
T O O U R C U S T O M E R S A N D C O N S T I T U E N T S :
CAP C E N T R A L A R I Z O N A P R O J E C T A N N U A L R E P O R T 2K
For Central Arizona Project the year 2000 was a year of resolution.
Throughout the year CAP solved many critical issues — including reaching a financial
settlement with the federal government, reducing the property tax we collect and lowering
the cost of water to our customers – and still set record water deliveries of 1,540,312 acre-feet
of water.
We are proud of the fact that it was the first time CAP exceeded its annual 1.5 million
acre-foot allocation. We also are confident that meeting or exceeding our allocation will
become routine as long as the water is available.
Along with record-setting water deliveries CAP also settled the long standing financial
dispute with the federal government over our share of the reimbursable costs of building
the 336-mile-long system of aqueducts, pumping plants, tunnels and siphons.
As a result of the settlement, the Central Arizona Water Conservation District Board of
Directors lowered the property taxes we collect by 10 percent and reduced the rates that
our customers pay for water by approximately 10 percent.
We also made internal improvements. We instituted a reserve study to help determine
how much money we need to set aside each year to meet the required replacement costs
of all CAP equipment.
We also have continued to work on replacing the impellers at Mark Wilmer Pumping
Plant in Lake Havasu. This is the culmination of a 12-year effort to reduce the high noise
levels and vibration caused by the impellers. We replaced one in 1999, two in 2000 and
have three to go. The benefits to CAP are tremendous. The new impellers produce 23
percent more flow that can eventually enable us to pump more Colorado River water.
Perhaps one of the most important results of the settlement is that CAP is now able to
focus on an enterprise-wide resource planning (ERP) system. The new ERP system will
replace the existing computer programs used at CAP with one effective, integrated system
that will be used by all employees. When it comes “on-line” in 2001, it will allow CAP and
its people to work more effectively and efficiently.
CAP also continued to fulfill its water management responsibilities in 2000. We actively
participated in helping to develop the rules and regulations that will govern interstate water
banking between Arizona and Nevada. We also participated in developing an acceptable
plan for California to reduce its over reliance on Colorado River water down to its 4.4
million acre-foot allocation.
Inside our borders, CAP created another recharge site in Pima County by bringing the
Lower Santa Cruz River Recharge Project on-line and we continued to work on developing
the Agua Fria Recharge Project in Maricopa County.
So it was a full year, a busy year, and a year of resolution.
But it also was a year of resolve for CAP. We resolve to be the state’s premiere water
management agency. We resolve to hold true to CAP’s legacy that, as Arizona’s largest
renewable water supplier, we will continue to bring the water needed to help sustain our
quality of life in central and southern Arizona.
P 01
DAVID S.“SI D” WILSON J R. GENERAL MANAGER
or Central Arizona Project, 2000 was a
year of resolution.
Businesses and organizations face problems
and challenges that, at times, seem insur-mountable.
The resolution of those chal-lenges,
the way the problems are solved,
determines the organization’s legacy.
CAP’s legacy is to provide water certainty in
an arid state. CAP provides surety that today,
tomorrow and into the future the people of
Arizona will have a safe, dependable source
of water. CAP holds to its legacy by annually
delivering renewable water supplies from
the Colorado River.
Creating that legacy was a long, difficult
process. Transforming CAP from a mere
dream at the beginning of the century to
the reliable, dependable source of water it
is today meant bringing a myriad of problems
to resolution.
First, those who dared to envision the
dream of CAP had to decide how to move
the water from the river to the central and
southern parts of the state. Many solutions
were proposed, including one in the early
1900s that called for drilling a tunnel from the
bottom of the Grand Canyon south to the
vicinity of Camp Verde where the Colorado
River water would be put into the Verde River.
While that was never realized, there was, in
time, a resolution to the problem: build an
aqueduct from Lake Havasu and pump the
water east to Phoenix and on to Tucson.
Once the physical form and route were
decided, it was time to make the dream a
reality.
Colorado River water is shared by seven
states: Arizona, California, Colorado, Nevada,
New Mexico, Utah and Wyoming. The states
are divided into two Basins, Upper and Lower,
and each Basin is entitled to 7.5 million acre-feet
annually.
Arizona is part of the Lower Basin and
shares the total of 7.5 million acre-feet
annually with California and Nevada.
Arizona is entitled to 2.8 million acre-feet,
Nevada’s share is 300,000 acre-feet and
California gets 4.4 million acre-feet.
Politics has always played an important
role in western water issues and became a
major challenge when CAP was proposed.
California, which uses far more than its
4.4-million acre-foot allocation because
Arizona had no way to move the water to
C H A L L E N G E S
THE CAP AQUEDUCT STRETCHES FROM LAKE HAVASU THROUGH
THE PHOENIX AREA AND ON TO TUCSON.
CHAPTER
10
F A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K
P 02 P 03
P 05
LAKE PLEASANT IS CAP’S STORAGE RESERVOIR. FROM OCTOBER
THROUGH MARCH, CAP PUTS WATER INTO THE LAKE AND FROM
APRIL TO OCTOBER, WATER IS RELEASED FROM THE LAKE TO
MEET THE INCREASED CUSTOMER DEMANDS.
the central part of the state, recognized the
threat to its additional water and became a
major CAP opponent. To remove the opposi-tion,
CAP accepted junior rights to the water.
That means in times of drought, California is
entitled to take its full 4.4-million acre-foot
allotment before CAP takes any water.
With CAP’s creation came new challenges.
For example, the construction of Orme Dam,
which was to serve as a storage and flood
control reservoir for the Phoenix area, fell vic-tim
to environmental concerns. But, always
flexible, always innovative, CAP managers and
proponents reached a resolution by making
Lake Pleasant the regulatory storage feature
and the flood control functions were trans-ferred
to the already existing Roosevelt Dam.
Other problems arose only to be resolved
with foresight and good management. In
1993, construction of the CAP water supply
system was declared “substantially complete”
by the Bureau of Reclamation (BOR), which
built the 336-mile-long system. Though water
deliveries began on a limited basis in 1985,
water managers celebrated as CAP deliveries
were now available to all customers in Pima,
Pinal and Maricopa counties. Water was
flowing from the Colorado River across the
state, to the Valley of the Sun, through the
farmlands of Pinal County to Tucson.
Along with being “substantially complete,”
1993 also brought CAP one of its longest
running, most contentious problems, the
dispute with BOR over CAP’s share of reim-bursable
costs for building the system. After
years of negotiations and legal battles, there
was a resolution to this challenge in 2000.
Although 2000 was a year of resolution for
CAP, there is no end to CAP’s resolve to find
solutions to its many remaining challenges.
As it has in the past, CAP will work relent-lessly
to find solutions to help the state formu-late
and administer wise water policies, to par-ticipate
in resolving regional disputes and to
continue to provide Arizona with a safe, secure
source of water now and into the future.
CALIFORNIA
ORIGINALLY
OPPOSED THE
CONSTRUCTION
OF CAP BECAUSE
THE GOLDEN
STATE USES MORE
THAN ITS ANNUAL
4.4 MILLION
ACRE-FOOT
ALLOCATION.
P 04
Along with being “substantially complete,” 1993
also brought CAP one of its longest running,
most contentious problems.
P 07
vidence of CAP’s careful planning and thorough preparation throughout 1999
became apparent as the year 2000 began at midnight without a bang, a whimper or even a sigh.
It was more like a yawn as the calendars clicked over with the second hand of the clock to
begin the last year of the 20th Century and Y2K was a non-event. There were no computer failures,
no failures of any kind. The only Y2K problem was lack of sleep as CAP employees remained
on alert until the New Year’s morning sun began to shine upon the water in the aqueduct.
With the passing of all Y2K concerns, CAP’s Senior Management Team (SMT) turned its
attention to successfully resolving many of the other on-going problems and disputes. By
year’s end, the hard work and dedication made 2000 a year of resolutions as CAP:
A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K E
Began its Enterprise Resource
Planning project, an integrated
information system.
Accelerated its plans for
recharging water.
Participated in drafting regula-tions
for Interstate Water
Banking and began contract
negotiations with Nevada and
California.
Participated in key Colorado
River issues, including support-ing
the implementation of
California’s 4.4 plan.
1
2
3
4
5
6
7
Delivered in excess of 1.5 mil-lion
acre-feet of water for the
first time.
Reached a financial settlement
with the United States over the
reimbursable cost of the system.
Initiated a reserve study to
plan for future repairs and
needed replacements.
Began replacing impellers at
the Mark Wilmer Pumping
Plant at Lake Havasu.
resolutions
8
R E S O L U T I O N
CHAPTER
11
P 06
The agreement settled a dispute that began
in 1993 when the U.S. Bureau of Reclamation
(BOR) declared the CAP water supply system
to be substantially complete. Although there
were many points of disagreement, the major
one was that BOR claimed CAWCD’s share of
the construction cost was about $2.3 billion.
CAWCD claimed its repayment obligation was
limited by contract to $1.781 billion. CAWCD
utilizes revenues from capital charges on CAP
M&I (municipal and industrial) allocations,
power revenues, a property tax levied in the
three counties and interest on CAWCD
reserves to meet its repayment obligation.
Negotiations between the two parties
began in 1993. A tentative agreement was
reached in 1995 but it fell apart at the last
minute and CAWCD filed suit in U.S.
District court. The complex trial was divided
into several phases. Judge Earl Carroll ruled
after the first phase in November 1998 that
CAWCD owed no more than $1.781 billion.
Both sides continued to negotiate and, in
2000, managed to reach a resolution. The
negotiated agreement, which conditionally
ended the lawsuit, settled all the financial
disputes between the U.S. and CAWCD.
The settlement fixes CAWCD’s repayment
obligation at $1.65 billion and gives the
federal government an additional allotment
of 200,000 acre-feet of water per year. In
addition, CAWCD retains the exclusive right
to market excess water. Excess water is any
CAP water that is not taken by a customer
with a long-term contract entitlement.
The agreement has several conditions
subsequent, and one key condition states
that within three years the state and federal
government must settle Indian water rights
disputes with the Gila River Indian Community
and Tohono O’odham Nation. As part of
that settlement, about 200,000 acre-feet of
additional CAP water has been made avail-able
to the federal government to use to
settle the claims. If the conditions aren’t
satisfied, litigation could resume.
As a result of the settlement, the CAWCD
Board voted to reduce its property tax levy by
10 percent. The Board reduced the ad valorem
tax rate for CAWCD from 10 cents to 9 cents
per $100 of assessed valuation.
In addition, the Board reduced the capital
cost of water to its municipal and industrial
customers, which are cities and businesses, by
about 10 percent, or $5 per acre-foot of water.
That changed the capital cost component of
water from $48 per acre-foot to $43 per acre-foot
and meant a savings of $569,570 for
Phoenix, $740,000 for Tucson, $70,000 for
Glendale and $174,000 for Mesa.
The tax and water rate reduction was
possible because the settlement reduced
CAWCD’s cost to $1.65 billion from the
more than $2 billion claimed by the U.S.
Since CAWCD will be making a lower
annual payment for its share of the costs it
could afford a reduction in revenues.
Consequently, the Board was able to
reduce the tax and
water rate.
P 09
Since CAWCD will be making a lower annual payment
for its share of the costs without a reduction in revenues,
the Board was able to reduce the tax and water rate.
CAP’s first deliveries of Colorado River
water began with water reaching the
Harquahala Irrigation District in 1985 and
Phoenix the following year. CAP did not
exceed the 1-million acre-foot per year mark
for water deliveries until 1996.
Just four years later, in 2000, CAP deliv-ered
a record 1,540,312 acre-feet of water
for the year, an increase of 14 percent from
the previous high of 1,364,715 set in 1997.
One cubic foot of water is 7.48 gallons.
Dry weather was the primary reason for
the record deliveries. When Arizona has a
wet year, customers need less CAP water.
Conversely, when it is dry, water orders
increase.
Water year 2000 was the driest year on
record for the local Salt and Verde rivers,
managed by Salt River Project. The monsoon
season was late and short, lasting only 51
days (normal is 86) and bringing only 1.21
inches of rain (normal is 2.78 inches). By
comparison, in 1999 the monsoon lasted 84
days and brought 5.19 inches of rain.
The resulting dry conditions in the summer
of 2000 were so severe that the Salt River
Project, faced with the specter of completely
draining reservoirs such as Roosevelt to meet
its customer demands, was forced to purchase
more than 200,000 acre-feet of CAP water
to augment its supply for its customers.
As a result, CAP had a record year. In
addition to delivering a record 1,540,312
acre-feet of water, CAP also set records for
daily and monthly water deliveries.
The old record for the most acre-feet of
water delivered in one month — 197,945
in July of 1997 — was exceeded three
times in 2000 when CAP reached 205,161
acre-feet in June, then 227,902 acre-feet in
July and yet once more when 205,623
acre-feet were delivered in August.
CAP also surpassed the old record for
the peak daily water delivery rate of 3,931
cubic feet per second (cfs) when it reached
4,065 cfs on July 18.
After years of litigation and settlement
discussions, negotiators for the Central
Arizona Water Conservation District (CAWCD)
and the United States agreed in May to settle
a lawsuit over the reimbursable costs of
building the CAP system.
P 08
deliveries
settl ement
2000
C A P WAT E R D E L I V E R I E S
H I G H E S T R E C O R D E D D E L I V E R I E S
AGRICULTURE
725,595
RECHARGE
M & I
INDIAN
1,540,312 ACRE FEET
435,827
259,886
119,004
2000
L O W E R B A S I N WAT E R U S E
CALIFORNIA
5,308,883
ARIZONA
NEVADA
PRELIMINARY FIGURES
MEASURED IN ACRE FEET
2,639,415
332,610
NOTE: This tabulation is based on diversions including
underground pumping, less measured return flow
and less current AZ estimated unmeasured return
flow to the river.
enterprise-wide resource planning (ERP)
system to meet the needs of CAP for the
first decade of the 21st century.”
The ERP project has required innumerable
hours of research to determine the exact
needs of groups and departments and to find
one system that could share information. The
proposed system would eliminate work redun-dancy
and allow departments to share data by
using one common computer platform.
Although CAP initially sought a complete ERP
system from a single vendor, a “best of
breed” approach was adopted to more fully
meet business needs. CAP selected two sys-tems
that will optimize CAP’s current and
future business processes. The new integrated
system will replace the current financial sys-tem,
the Maintenance Management System
and manual processes in Human Resources.
ERP implementation began in October
2000 with building a project work plan,
designing a communications strategy and
assembling working teams for each functional
area to assist with implementation. The
expected “go live” date is September 2001.
While CAP focused on improving its
internal technological structure it also
moved in 2000 to position itself as Arizona’s
leading source of renewable water by
opening a new recharge site, increasing
Central Arizona Groundwater Replenishment
District (CAGRD) membership and by
participating in interstate water banking
negotiations.
CAP protects Arizona against future
water shortages by partnering with the
Arizona Water Banking Authority (AWBA)
and some customers to recharge excess
CAP water. Recharge, or storing water
underground for future use, is a kind of
water bank. The water, stored in the
underground aquifers, can be pumped
back out during drought and, in the inter-im,
the stored water replenishes already
depleted aquifers.
P 11
THE SYSTEM STARTS HERE: THE MARK WILMER PUMPING PLANT AT LAKE HAVASU
IS THE BEGINNING OF THE 336-MILE-LONG SYSTEM.
The settlement also has allowed CAP to focus on another mission ”to specify, procure, and implement an enter-prise-
wide resource planning (ERP) system to meet the needs of CAP for the first decade of the 21st century.”
recharge
The financial settlement gives CAP financial
certainty in a significant area of expense and
capital debt. As a precautionary measure, CAP
had maintained its financial reserves at optimum
levels in case litigation resumes. However, with
the settlement CAP is better able to project its
costs more reliably, which will also enhance
its ability to plan for the future.
One of the major steps CAP is taking is to
conduct a reserve study. The study will show
how much money is needed for future repairs
and replacements and other purposes.
For example, a piece of equipment may
have an expected life of 10 years and a pro-jected
replacement cost of $100,000. The
reserve study would then project that CAP
must either borrow the full replacement cost
or set aside, or save, $10,000 a year so that
in 10 years when the equipment wears out,
the funds will be available to replace it.
That study is being done on a system
wide scale and will take into account all of
CAP’s equipment and expected future
repairs. When complete, CAP will be able
to project how much money to collect and
set aside each year to meet the required
replacement costs.
One major replacement project that contin-ued
through 2000 is the replacement of the
six impellers at the Mark Wilmer Pumping
Plant near Lake Havasu City. Impellers are
used to push water 824 vertical feet up the
side of a mountain. The water is then released
into a seven mile long tunnel where it
starts its journey through the CAP system.
About 12 years ago CAP began reviewing
the high noise and vibration problem in the
plant caused by the six impellers. Together with
BOR, CAP undertook a study to review the sit-uation
and devised a replacement plan. The
first impeller was replaced in 1999. In 2000
two more impellers, each costing about
$350,000, were replaced. The fourth will be
replaced in 2001 and the last two in 2002. The
new impellers reduce the noise by a factor of
three and vibration well over 80 percent.
In addition to reducing the noise and
vibration, there has been an additional
bonus to having the new impellers: each
new unit at Mark Wilmer Pumping Plant
will produce 23 percent more flow than it
was originally designed to do and is more
efficient in energy use. The extra flow will
provide an incentive to CAP to upgrade
other plants and the canal to accept the
increased amount of water. Ultimately CAP
will be able to pump more than the 3,000
cfs it now pulls out of the river.
In addition to the reserve study and
impeller replacement, the settlement also has
allowed CAP to focus on another mission
“to specify, procure, and implement an
P 10
internal accomplishments
THE NEW IMPELLERS AT MARK WILMER PUMPING PLANT WILL
INCREASE THE FLOW OF WATER BY 23 PERCENT.
P 13
THE LOWER SANTA CRUZ RECHARGE PROJECT, DEDICATED ON NOVEMBER 2,
WILL RECHARGE ABOUT 30,000 ACRE-FEET OF WATER EACH YEAR.
In 2000, CAP added one more recharge
site to its portfolio when it dedicated the
Lower Santa Cruz Recharge Project (LSCRP)
on November 2. About 30,000 acre-feet of
Colorado River water will be recharged each
year at LSCRP. LSCRP—a joint effort by CAP,
Town of Marana, Pima County Flood Control
District and BKW Farms—joined the Avra
Valley Recharge Project (about 11,000 acre-feet
per year) and Pima Mine Road Recharge
Project (about 30,000 acre-feet per year),
which are all located in the Tucson area.
CAP initially concentrated on locating
recharge projects in Pima County because
Tucson’s groundwater table is falling dra-matically
as the city pumps more ground-water
out of the aquifer than is replaced.
This “groundwater mining” leads to problems
including subsidence, or cracks in the earth,
that can damage roads, homes and busi-nesses.
Recharge helps replenish the
groundwater table and prevent subsidence.
Maricopa County is the site of CAP’s next,
and largest, planned recharge facility. The
Agua Fria Recharge Project (AFRP) in Peoria
continued to move forward in 2000. AFRP
will be the first to include both in-stream
and basin recharge systems. It is scheduled
to begin operations in late 2001.
CAP also stepped up plans for more
recharge sites in the state and is studying
other sites in both eastern and western
Maricopa County. CAP launched a Western
Arizona Survey to find additional sites.
Another way CAP improves its service to
customers is through the Central Arizona
Groundwater Replenishment District (CAGRD).
CAGRD helps customers and communities
by providing a way for developers and water
providers to demonstrate compliance with
Arizona’s requirement of a 100-year assured
water supply using renewable water supplies
rather than relying on groundwater. CAGRD
enrolls members who cannot locate and
secure enough renewable water supplies on
their own to comply with the law. CAGRD
replenishes groundwater on behalf of its
members by recharging water to compen-sate
for the excess pumping. Members are
classified as Member Service Areas, such as
cities, town and private water companies,
and Member Lands, which primarily include
subdivisions located outside city water serv-ice
area boundaries.
In 1995 CAGRD began enrolling members
and, by year’s end, it had 4 Member Lands
with 184 homes and 3 Member Service
Areas, each representing a municipal water
provider’s service area. Since then, CAGRD
has grown to 324 Member Lands, consisting
of more than 70,000 homes and 15
Member Service Areas.
CAP has been a partner with the AWBA
since it was created by the Arizona
Legislature in 1996. The AWBA stores CAP
water underground for future use.
Part of AWBA’s funding comes from CAP
which annually dedicates part of its ad
valorem property tax to the Bank for the
purchase and storage of excess or unused
Colorado River water.
In 2000, CAP helped AWBA purchase and
store more than 200,000 acre-feet of water
that can be recovered in times of drought.
Through these efforts, and many others,
CAP’s leadership dedicated itself successfully
to bringing to a resolution many of the
issues facing CAP during the 20th Century.
P 12
cagrd
water banking
he dawn of the 21st Century means CAP
has moved from the resolution of past
issues to strive to become Arizona’s leading
water management organization.
CAP resolves to continue dealing with
internal changes while maintaining excel-lent
customer service. At the same time,
CAP is moving into a larger arena where it
is dealing with statewide and regional
issues.
As before, there seems to be no end to
the challenges needing resolution. But the
issues are critical and could affect Arizona’s
future water supply so CAP’s board and
management resolve to work diligently to
find answers.
Some of the major challenges CAP faces
in the new century are interstate water
banking, helping to implement the Interim
Operating Criteria for the Colorado River,
dealing with the movement to drain Lake
Powell, facing the Mexican Delta controversy,
finding a way to implement the Multi-
Species Conservation Program, and dealing
with deregulation of the electrical industry
in the desert Southwest.
Interstate water banking moved a step
closer to becoming a reality in 2000. In
conjunction with the Arizona Water
Banking Authority (AWBA) and the Arizona
Department of Water Resources (ADWR),
CAP contributed to efforts to work with
the U.S. to establish federal regulations to
allow interstate water banking so Arizona
could store water on behalf of Nevada and
California. By the end of 2000 all parties
had agreed to the new regulations.
In general terms, Nevada would pay all
the costs of having the AWBA and CAP
store Colorado River water in a recharge
facility in Arizona. When Nevada wanted to
reclaim the stored water it would take
some of Arizona’s allocation from the river
and Arizona would then pump that same
amount of water back out of the recharge
site, put it back in CAP’s aqueduct and
deliver it to customers.
A second milestone negotiated in 2000
were the Interim Operating Criteria. CAP
joined DWR and other Arizona water users
in negotiations to develop criteria that
would allow California to gradually reduce
its use of Colorado River water to its 4.4-
million acre-foot allotment. California
currently uses an average of 5.2 million
acre-feet of Colorado River water each
year. The plan calls for California to receive
a guarantee of at least 4.8 million acre-feet
a year for 15 years while it works toward
reaching its 4.4 goal.
A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K T
P 15
THE COLORADO RIVER PROVIDES DRINKING WATER
FOR MORE THAN 20 MILLION PEOPLE EACH DAY.
R E S O L V E
CHAPTER
12
P 14
left unresolved. Without Glen Canyon Dam
regulating the river, the seven states would
be drawn into a series of legal disputes.
Draining Lake Powell would also have sig-nificant
negative effects on CAP’s main source
of electricity, the Navajo Generating Station.
Navajo gets its water supply from Lake
Powell. If the lake were drained Navajo
would need to find another water source or
develop a new, more expensive pumping site.
Overall, draining Lake Powell would signifi-cantly
impact the reliability of CAP’s long term
Colorado River water supply. Droughts on
the Colorado River would cause more severe
depletions of Lake Mead and draining Mead
would eventually accelerate and increase
water shortages to CAP and to Arizona.
Environmentalists claim draining Lake
Powell would not only restore Glen Canyon’s
natural beauty, but it would also provide
more water for the Mexican Delta. In most
years very little river water reaches the Delta,
where the Colorado River empties into the
sea. The Delta is an environmentally sensitive
area providing habitat to a variety of species.
Broad efforts have been underway for some
time to determine the needs of the Delta and
to propose solutions. The International
Boundary and Water Commission (IBWC) has
been working to establish a framework under
which Mexico and the United States might
cooperate in developing studies and recom-mendations
for the area.
While it may seem easy to keep enough
water in the river to restore the Delta habitat,
there are many problems. Currently, BOR
does not have the legal right to release
Colorado River water except for river regula-tion,
improvement of navigation and flood
control; for irrigation and domestic uses;
and for power. There is no law in place
that would permit the release of water for
environmental purposes.
In addition, if the water were released to
Mexico for the Delta, there currently is no
guarantee that such excess flows would ever
get there. Mexico uses all of its Colorado
River water and it’s likely the excess would be
diverted for agricultural and municipal use.
Yet another environmental issue facing
CAP is the Lower Colorado River Multi-
Species Conservation Program (MSCP).
Through this program three states, along
with numerous stakeholders including
Indian tribes, wildlife agencies and water
and hydroelectric power management
agencies, are working together to achieve
long-term compliance with state and federal
endangered species laws.
This program is the first alliance of its kind
to work toward protecting multiple species
of threatened or endangered fish and wildlife
P 17
Draining Lake Powell would significantly impact the reliability of
CAP’s long term Colorado River water supply.
IF EXCESS COLORADO RIVER WATER WERE
RELEASED TO MEXICO FOR THE DELTA,
THERE CURRENTLY IS NO GUARANTEE THAT THE
WATER WOULD NOT BE DIVERTED FOR AGRICULTURAL
AND MUNICIPAL USE.
In simple terms, Arizona, Colorado,
Nevada, New Mexico, Utah and Wyoming
have agreed to guarantee California will
receive 400,000 acre-feet more than its
allotment for 15 years. Projections show
there should be a natural surplus of river
water available to accommodate California
in most years. Surplus is declared on the
river whenever the Colorado River storage
system is relatively full and the projected
runoff is more than can be safely stored.
However, the agreement states that in
any year during that 15-year span, even if
there is not a real or natural surplus, some
water stored in Lake Mead will be released
for California’s benefit. The loss of stored
water is expected to be recaptured over
time in future surplus years.
CAP was concerned that if water is
released from Lake Mead in consecutive
years followed by a drought, a shortage
would be declared on the river and CAP, as
the junior right holder to Colorado River
water, would be the first to lose its water.
The resolution to the problem: to protect
CAP, California has agreed to take the first
1 million acre-feet of shortage if the extra
water released for California during the 15
year span contributed to the shortage.
In December, outgoing Interior Secretary
Bruce Babbitt praised the seven states for
reaching agreement on the Interim
Operating Criteria and promised it would
be approved before President Clinton left
office in January of 2001.
In addition to dealing with California,
CAP also faces several regional environ-mental
challenges as it seeks to manage
Arizona’s water supply.
The first of these is the movement to
remove Glen Canyon Dam and drain Lake
Powell. This movement, initiated by the
Sierra Club in 1996, would threaten the
reliability of CAP’s water supply.
When full, Lake Powell stores more than
25 million acre-feet of water. Being such a
formidable storage facility, Lake Powell helps
stabilize the inconsistencies of the Colorado
River. It allows the Upper Basin States to
develop and use their full Colorado River
apportionment while at the same time it
assists them in meeting their long-term water
supply commitments to the Lower Basin.
The importance of safeguarding the
agreement between the upper and lower
basins should not be underestimated.
When Glen Canyon Dam was authorized in
1956 many water management issues were
P 16
LAKE
POWELL
STORES
MORE THAN
25 MILLION
ACRE-FEET
OF WATER.
PHOTO BY PETER ENSENBERGER
and their habitat. Its objectives are to
accommodate current water diversions and
power production and optimize future water
and power development opportunities, while
also conserving the habitat and working
toward the recovery of endangered species
and reducing the likelihood of additional
threatened and endangered species listings.
The program covers the mainstem of the
lower Colorado River from below Glen
Canyon Dam to the International Boundary
with Mexico, including the 100-year flood
plain and full-pool reservoir elevations. It
will include more than 100 species of mam-mals,
birds, fish, amphibians, reptiles, inver-tebrates
and plants as well as their associated
habitats, ranging from aquatic, wetland,
and riparian habitats to upland areas.
The MSCP began about five years ago,
and it was estimated that program devel-opment
would take about three to four
years and cost about $4.5 million.
Participants are now about five years into
program development, and it is estimated
that an additional two years and $2.2 mil-lion
more will be needed to complete it, for
a total cost of $6.7 million.
Once program development is complete
the MSCP will be implemented over a 50
year period and will accommodate current
water diversions and power production and
optimize opportunities for future water and
power development, while at the same time
addressing the environmental needs as out-lined
by federal and non-federal agencies.
The move toward deregulating the elec-trical
market began in earnest in 2000. In
California, San Diego was among the first
cities to experience increased power costs
and rolling blackouts during the summer.
Experts predicted California would experi-ence
more severe power shortages due to
lack of generating capacity.
CAP did not experience any cost increases
for power nor have any interruption of
service. About 25 percent of the Navajo
Generating Station is dedicated to CAP,
along with some Hoover B and C power,
which was enough to forestall any prob-lems.
Since CAP’s transmission capacity
contracts do not expire for more than a
decade, the problems looming in the future
caused by deregulation should have little, if
any, negative impact on CAP.
CAP’s leadership has resolved to deal
with and help find solutions for these and
many other challenges as it moves into the
new century fully determined to secure and
protect Arizona’s water supply now and for
generations to come.
P 18
CAP IS PARTICIPATING IN A PROGRAM
THAT IS WORKING TOWARD THE RECOVERY
OF ENDANGERED SPECIES.
Central Arizona Water Conservation District
D E C E M B E R 3 1, 2 0 0 0
p 19
STATEMENTS OF NET ASSETS
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS
P 20
P 21
P 23
P 24
P 25
C O N T E N T S
REPORT OF INDEPENDENT AUDITORS
A U D I T E D F I N A N C I A L S TAT E M E N T S
P 48
O T H E R F I N A N C I A L I N F O R M AT I O N
MANAGEMENT’S DISCUSSION AND ANALYSIS
S TAT E M E N T S O F N E T A S S E T S
D E C E M B E R 3 1
2000 1999
A S S E T S
Current assets:
Cash $ 38 $ 2,639
Investment in Arizona Local Government Investment Pools 5,896 7,277
Total cash and cash equivalents 5,934 9,916
Receivables:
Accrued interest receivable on unrestricted investments 4,532 1,589
Due from water customers, less allowance for doubtful accounts
of $1,875 and $2,252 at December 31, 2000 and 1999, respectively 1,866 1,976
Other, less allowance for doubtful accounts of $-0- and $4,709
at December 31, 2000 and 1999 respectively 669 548
Repayment Credit (Note 3) 35,584 —
Materials and supplies inventory 2,939 2,727
Water Inventory 12,647 6,481
Other 918 1,735
Total current assets 65,089 24,972
Noncurrent assets:
Funds held by federal government 26,679 27,789
Investment in State Treasurer CAP investment pool (Note 6) 172,962 173,477
Restricted assets (Note 7) 98,740 92,626
Advances to federal government (Note 8) 5,930 5,022
Property and equipment, less accumulated depreciation of $14,966
and $12,607 at December 31, 2000 and 1999, respectively 23,192 16,258
Permanent service right, less accumulated amortization of $208,851
and $178,313 at December 31, 2000 and 1999, respectively 1,585,846 1,761,190
Bond issuance costs, net of accumulated amortization of $2,726
and $2,480 at December 31, 2000 and 1999, respectively 1,252 1,512
Total noncurrent assets 1,914,601 2,077,874
Total assets $ 1,979,690 $ 2,102,846
See accompanying notes.
( I n t h o u s a n d s )
R E P O RT O F I N D E P E N D E N T A U D I T O R S
T h e B o a r d o f D i r e c t o r s
C e n t r a l A r i z o n a W a t e r C o n s e r v a t i o n D i s t r i c t
We have audited the accompanying statements of net assets of
Central Arizona Water Conservation District as of December 31,
2000 and 1999, and the related statements of revenues, expens-es
and changes in net assets, and cash flows for the years then
ended. These financial statements are the responsibility of the
District's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assur-ance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evi-dence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting prin-ciples
used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
The management’s discussion and analysis beginning on page 48
is not a required part of the basis financial statements but is sup-plementary
information required by the Governmental Accounting
Standards Board. We have applied certain limited procedures,
which consisted principally of inquiries of management regarding
the methods of measurement and presentation of the supplemen-tary
information. However, we did not audit the information
and express no opinion on it.
In our opinion, the financial statements referred to above pres-ent
fairly, in all material respects, the financial position of
Central Arizona Water Conservation District at December 31,
2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Mar ch 16 , 2001
p 20 p 21
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
Y E A R E N D E D D E C E M B E R 3 1
2000 1999
O P E R AT I N G R E V E N U E S
Water operations and maintenance charges $ 60,516 $ 54,924
Water service capital charges 28,283 28,373
Power revenues (Note 5) 51,553 52,990
Reimbursements and other operating revenues 3,729 1,446
Total operating revenues 144,061 137,733
O P E R AT I N G E X P E N S E S
Salaries and related costs 27,933 26,493
Pumping power 44,564 39,989
Power transmission 1,922 2,381
Hoover capacity charges 3,072 3,288
Amortization of permanent service right 30,538 32,835
Depreciation 3,393 2,725
Provision for OM&R reconciliation (Note 14) — 2,000
Provision for doubtful accounts 28 419
Other operating expenses 11,974 10,252
Total operating expenses 123,424 120,382
Operating income before unusual expense item 20,637 17,351
Unusual expense item - provision for OM&R reconciliation (Note 14) — (16,000)
Operating income after unusual expense item 20,637 1,351
NONOPERAT I N G R E V E N U E S ( E X P E N S E S )
Property taxes, less assignment to Arizona Water Banking Authority
of $9,967 and $9,125 in 2000 and 1999, respectively 23,629 22,754
Interest income and other nonoperating revenues 19,526 13,055
Interest income reserved for Ak-Chin fund 336 260
Interest income and other nonoperating revenues reserved
for State Demonstration Project 1,147 1,029
Interest expense and other nonoperating expenses (49,895) (54,838)
Total nonoperating revenues (expenses) (5,257) (17,740)
Change in net assets 15,380 (16,389)
Net assets at beginning of year 139,650 156,039
Net assets at end of year $ 155,030 $ 139,650
See accompanying notes.
( I n t h o u s a n d s )
S TAT E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S I N N E T A S S E T S
D E C E M B E R 3 1
2000 1999
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 12,901 $ 13,897
Accrued payroll, payroll taxes and other accrued expenses 4,479 2,100
Current liabilities payable from restricted assets, advances to federal
government, and other noncurrent assets:
Accrued interest payable 38,580 42,758
Repayment obligation, due within one year (Note 3) 20,272 17,605
Contract revenue bonds, due within one year (Note 10) 18,050 17,250
OM&R reconciliation obligations (Note 14) 16,240 —
Total current liabilities 110,522 93,610
Noncurrent liabilities:
Repayment obligation, due after one year (Note 3) 1,526,013 1,647,838
Contract revenue bonds, due after one year, net of unamortized discounts
of $16,015 and $18,386 at December 31, 2000 and 1999, respectively (Note 10) 171,768 187,447
OM&R reconciliation obligation (Note 14) — 18,000
Provision for retiree health insurance 313 —
Water operations and capital charges deferred revenue 16,044 16,301
Total noncurrent liabilities 1,714,138 1,869,586
Total liabilities 1,824,660 1,963,196
N E T A S S E T S
Investment in capital assets, less related debt (125,812) (91,180)
Restricted 96,465 91,706
Unrestricted 184,377 139,124
Total net assets 155,030 139,650
Total liabilities and net assets $ 1,979,690 $ 2,102,846
See accompanying notes.
S TAT E M E N T S O F N E T A S S E T S C O N T I N U E D
( I n t h o u s a n d s )
p 22 p 23
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
O R G A N I Z AT I O N A N D R E P O R T I N G E N T I T Y
The Central Arizona Water Conservation District (District) is a multicounty water conservation district organized within the
state of Arizona encompassing Maricopa, Pima, and Pinal counties. The District's popularly elected Board of Directors serves
as its governing body. Under the requirements of Governmental Accounting Standards Board (GASB) Statement No. 14, The
Financial Reporting Entity, the District is a primary government, which includes an ancillary project, the Central Arizona
Groundwater Replenishment District (CAGRD). The District was authorized in 1971 by the Arizona State Legislature for the
primary purpose of creating a single entity to enter into an agreement (Note 3) with the United States Department of the
Interior, Bureau of Reclamation (Reclamation), for repayment of the reimbursable cost of the Central Arizona Project (CAP).
The District is further empowered to serve as the operating agent of the CAP.
In 1993, the State legislature gave the District additional authority to provide replenishment services within the District’s
three-county service area. This authority is commonly referred to as the Central Arizona Groundwater Replenishment District.
The CAGRD began enrolling members in 1995, and as of December 31, 2000, there were 324 member lands (individual sub-divisions)
and 15 member service areas. The CAGRD is responsible for using renewable water supplies to replenish
(or recharge) excess groundwater used by its members. All costs of the CAGRD are to be paid by its members through
assessments based on replenishment services provided. Through 2000, the CAGRD’s total net replenishment obligation was
approximately 3,456 acre-feet.
The CAP is a multi-purpose water resource project authorized by the Congress of the United States in 1968 by the Colorado
River Basin Project Act and was constructed by Reclamation. The CAP is intended to deliver an average of approximately 1.5
million acre-feet of Arizona's annual share of Colorado River water to central and southern Arizona,
which will partially replace existing groundwater uses and supplement surface water supplies. It also provides flood control,
power, recreation, and fish and wildlife benefits. The major authorized project features include (1) a 335-mile aqueduct system
(water supply system), (2) New Waddell and Modified Roosevelt Dams (regulatory storage facilities), (3) replacement features
or programs for Cliff Dam (Cliff Dam Alternative), (4) Hooker Dam or suitable alternative (Hooker Dam Alternative), (5)
Buttes Dam, (6) Navajo Power Project (Navajo), and (7) Indian and non-Indian water distribution systems.
The District has the authority to levy ad valorem taxes against all taxable property within its boundaries. The first ad valorem
tax, which may not exceed 10 cents per $100 of assessed valuation, is for the District’s operations and repayment of the
construction cost repayment obligation of the CAP (Note 3). The second ad valorem tax, which may not exceed 4 cents per
$100 of assessed valuation, is for water storage to the extent that it is not required for the District’s operations or repayment
of the construction cost repayment obligation of the project. Through December 1995, this tax was used to fund water
recharge activities under State Demonstration Projects and was levied only in Maricopa and Pima Counties (see Note 7).
In April 1996, the Arizona State Legislature amended the law relating to this second ad valorem tax (see Note 7). The ad
valorem tax for operations and repayment was levied at 10 cents per $100 of assessed valuation for the tax year ending June
30, 2000, and 9 cents per $100 of assessed valuation for the tax year ending June 30, 2001. The ad valorem tax for water
storage was levied at 4 cents per $100 of assessed valuation in 1999 and 2000 and has been transferred to the Arizona Water
Banking Authority (see Note 7). Property taxes are collected on behalf of the District by the respective counties.
1.
N O T E S T O F I N A N C I A L S TAT E M E N T S
D E C E M B E R 3 1 , 2 0 0 0
Y E A R E N D E D D E C E M B E R 3 1
2000 1999
C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S
Cash received from customers $ 90,429 $ 83,250
Cash received from power sales 54,090 52,956
Cash paid to employees (25,554) (26,835)
Cash paid to suppliers (69,180) (57,268)
Net cash provided by operating activities 49,785 52,103
C A S H F L O W S F R O M N O N C A P I TA L F I N A N C I N G A C T I V I T I E S
Cash received from property taxes, net 23,629 22,754
Net cash provided by noncapital financing activities 23,629 22,754
C A S H F L O W S F R O M C A P I TA L A N D R E L AT E D F I N A N C I N G A C T I V I T I E S
Payments on contract revenue bonds, including interest and other expenses (27,681) (27,672)
Payments on repayment obligation, including interest (58,616) (68,032)
Additions to property and equipment (10,327) (6,075)
Increase in Repayment Credit (35,584) —
Decrease in Repayment Obligation (101,553) —
Decrease in advances to federal government (908) (2,873)
Decrease in permanent service right 144,806 —
Net cash used in capital and related financing activities (89,863) (104,652)
C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S
(Increase) in restricted assets (6,114) (2,430)
Decrease in investment in state pool 515 12,943
Interest on investments 18,066 13,658
Net cash provided by investing activities 12,467 24,171
Net (decrease) in cash and cash equivalents (3,982) (5,624)
Cash and cash equivalents at beginning of year 9,916 15,540
Cash and cash equivalents at end of year $ 5,934 $ 9,916
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net operating income (loss) $ 20,637 $ 1,351
Adjustments to reconcile operating loss to net cash used in operating activities:
Amortization of permanent service right 30,538 32,835
Depreciation 3,393 2,725
Provision for doubtful accounts 28 420
Changes in operating assets and liabilities:
Due from water customers 82 (1,379)
Due from other receivables (121) 65
Inventory (212) 70
Lake Pleasant (6,166) (2,573)
Other 817 (884)
Funds held by federal government, net 1,110 1,413
Accounts payable (996) 583
Increase (decrease) in deferred payment (257) (181)
OM&R reconciliation obligation (1,760) 18,000
Accrued payroll, payroll taxes and other accrued expenses 2,379 (342)
Accrued pension 313 —
Net cash provided by operating activities $ 49,785 $ 52,103
See accompanying notes.
S TAT E M E N T S O F C A S H F L O W S
( I n t h o u s a n d s )
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SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
Property and Equipment
Property and equipment are stated at cost. Assets are depreciated on the straight-line method over the estimated useful lives
of the assets ranging from five to forty years.
Permanent Service Right
The District's interest in the CAP represents a permanent service right pursuant to the Master Repayment Agreement and the
settlement Stipulation (Note 3). The permanent service right represents the District's right to use the CAP water delivery sys-tem
for the purpose of fulfilling its responsibility of delivering water as provided in the Master Repayment Agreement.
The District has used the repayment obligation specified in the settlement Stipulation, plus certain advances to the federal
government and other adjustments, in recording the permanent service right. The cost of the permanent service right may
be adjusted in the future as a result of determinations to be made as a consequence of the settlement Stipulation
(see Notes 3 and 11).
Although the District's interest in the CAP is reflected in the accompanying balance sheets, the United States retains a
paramount right or claim in the CAP arising from the original construction and operation of the CAP as a Federal
Reclamation Project. The District's right to the possession and use of, and to all revenues produced by, the CAP is evidenced
by the Master Repayment Agreement, various laws, and other agreements with the United States. Legal title to the CAP
will remain with the United States until otherwise provided by Congress.
The District amortizes the permanent service right on the straight-line method over the estimated useful lives of the major
components of the CAP, generally 100 years for the aqueduct, 30 years for the Navajo power plant and related transmission
facilities, 50 years for buildings and structures, and 20 years for the pumping plant equipment.
The cost of periodic maintenance is charged to operations expense and the cost of major replacements is capitalized.
Bond Issuance Costs and Discounts
Bond issuance costs and discounts are deferred and amortized over the term of the related bonds on the interest method.
Bond discounts are presented as a reduction of the face amount of bonds payable whereas issuance costs are recorded as
deferred charges.
Revenue Recognition
The District records revenue from the sale of water, the sale of power, the collection of property taxes and the provision of
certain contract services to other outside entities. Water rates consist of a water service capital charge and an operations,
maintenance and replacement (OM&R) charge (see Note 4). Generally, OM&R charges are determined by the Board of
Directors after giving consideration to the amount of OM&R costs to be paid by the various subcontractors and through
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Basis of Accounting
The accounting policies of the District conform to generally accepted accounting principles as applicable to an enterprise
fund of a governmental unit. Accordingly, the accrual basis of accounting is utilized, whereby revenues are recorded when
they are earned, and expenses are recorded when the liability is incurred. The District has elected, in accordance with GASB
Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Activities
That Use Proprietary Fund Accounting, and GASB Statement No. 29, The Use of Not-for-Profit Accounting and Financial
Reporting Principles by Governmental Entities, not to apply Financial Accounting Standards Board Statements and
Interpretations issued after November 30, 1989. The District has elected to implement GASB Statement No. 34, Basic
Financial Statements—and Management’s Discussion and Analysis for State and Local Government, as well as GASB
Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, in 2000. The District's books and
records include separate accounts and projects that are described as "funds": a general fund, Ak-Chin fund, State
Demonstration Project fund, CAGRD project, and debt service funds. These "funds" have been combined in the accompanying
financial statements. All material interfund transactions have been eliminated.
Use of Estimates
The preparation of financial statements that conform to generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. See also Note 3 and 11 regarding the District’s repayment obligation and the
Settlement Stipulation.
Cash and Unrestricted Investments
All funds are to be invested in obligations issued or guaranteed by the United States or any of its agencies, collateralized
repurchase agreements, obligations of the state and local governments, prime quality commercial paper, and other instruments
as set forth in the District's enabling legislation.
Investments are managed by the State Treasurer and maintained in investment pools (the CAP Pool, the state of Arizona
Local Government Investment Pool and the state of Arizona Pool 3). The Local Government Investment Pool (LGIP) consists
of investments with maturities of less than one year and therefore are recorded at cost. The CAP Pool and Pool 3 are
recorded at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments
and for External Investment Pools (see Note 6).
Inventory
Inventory is comprised of maintenance, office, auto, and safety supplies and is carried at the lower of cost (first-in, first-out)
or market.
2.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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M A S T E R R E PAY M E N T A G R E E M E N T
The Agreement
Reclamation and the District entered into a contract for delivery of water and repayment of costs of the CAP in December
1972 (1972 Master Repayment Agreement). The 1972 Master Repayment Agreement implemented the Colorado River Basin
Project Act of 1968 (Project Act). Among other things, Reclamation agreed in the 1972 Master Repayment Agreement to
construct the CAP and the District agreed to repay (1) the reimbursable construction costs of the CAP properly allocated to
the municipal and industrial (M&I) and non-Indian agricultural water supply and the power functions of the CAP, (2) OM&R
costs during construction properly allocated to the non-Indian water supply and power functions, and (3) interest during
construction on costs allocated to the M&I water and the power functions. An amended contract (1988 Master Repayment
Agreement) was executed in December 1988, which superseded and replaced the 1972 Master Repayment Agreement. (The
1972 Master Repayment Agreement as superseded and replaced by the 1988 Master Repayment Agreement is referred to
herein as the Master Repayment Agreement.)
Commencement of Repayment
The Master Repayment Agreement provides that the Secretary of the Interior (Secretary) shall issue notice of completion of
each CAP construction stage. Reclamation notified the District that the water supply system, the first construction stage, was
substantially complete on October 1, 1993. This notification initiated repayment by the District for the water supply system.
Reclamation notified the District that the regulatory storage facilities stage, consisting of New Waddell and Modified
Roosevelt Dams, was substantially complete on September 30, 1996. This notification initiated repayment by the District
for the regulatory storage facilities stage.
The Master Repayment Agreement requires the District to make annual payments to the United States on the repayment
obligation related to the completed construction stages. These payments are required to be made over a 50-year period and
are based on paying a percentage of the remaining outstanding repayment obligation, plus interest, with each construction
stage having a separate 50-year repayment period as follows: contract years 1-7: 1 percent; 8-14: 1.3 percent; 15-21: 1.6
percent; 22-28: 2 percent; 29-35: 2.6 percent; and 36-50: 2.7 percent.
Repayment Litigation and Stipulation
In July 1995, the District filed a lawsuit against the United States seeking a judicial determination of the District’s repayment
obligation. The United States also filed a lawsuit against the District. The two lawsuits were consolidated into a single action
in the Federal District Court (the Court) in Phoenix, Arizona (the Repayment Litigation). In May 2000, the District and the
United States entered into a Stipulation Regarding a Stay of Litigation, Resolution of Issues During the Stay and for Ultimate
Judgment upon the Satisfaction of Conditions (the Stipulation) to resolve all the issues in the Repayment Litigation. The
Stipulation was approved by the Court on May 9, 2000.
The ultimate effectiveness of the Stipulation is subject to a number of conditions, including settlement of certain Indian water
rights claims, and will require certain State of Arizona and federal legislation. If the conditions are not met within three years
and the parties do not agree separately to amend the conditions or extend the deadline, the Stipulation will terminate
3.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
property taxes. Water is delivered to subcontractors and other customers based on delivery requests. Revenue from OM&R
charges is recognized as it is earned and revenue from water service capital charges is recognized ratably over the period of
the billing. Generally, OM&R charges for scheduled water deliveries are due in advance.
Revenues from contract services and the sale of power are recorded when earned.
Property taxes are recorded as revenue when received. Tax equivalency charges are recorded when received if there is no
obligation to deliver any services or provision for refund.
Statement of Cash Flows
For the purpose of the statement of cash flows, investments in the state of Arizona Local Government Investment Pools are
treated as cash equivalents due to their liquidity.
Water Inventory Adjustment
In 1998, the District adopted a new accounting policy for recording changes in the water inventory stored in Lake Pleasant.
The water inventory adjustment is a means to adjust the pumping energy component of water service charges to recognize
that the cost of power used to pump water into Lake Pleasant should be recovered, through OM&R charges, in the year the
water is delivered to customers, not the year in which it is pumped into Lake Pleasant. Based on a typical operating year,
which involves pumping water into Lake Pleasant between late October and April and releasing water from Lake Pleasant
in June through early October, the expected amount of storage at year end is approximately 300,000 to 325,000 acre-feet.
Since the District’s share of Lake Pleasant storage at December 31, 1997 was approximately 324,000 acre-feet, this level was
chosen as a base level storage from which future deviations would be measured. The value of the water storage inventory
below 324,000 acre-feet was included in the permanent service right.
In 2000, the District further modified this policy to reclassify the water storage inventory below 324,000 acre-feet from the
permanent service right to the water inventory adjustment. The amount of this adjustment was $9,790,000. The water inventory
adjustment represents the weighted average energy cost associated with the change in storage level in Lake Pleasant over the
calendar year. The District’s share of Lake Pleasant storage as of December 31, 2000, was 359,000 acre-feet.
Application of GASB Statement No. 31
GASB Statement No. 31 changed the current practice of reporting most investments held by governmental entities from a cost
basis to a fair value basis. At December 31, 1999, fair value exceeded cost by $986,000. At December 31, 2000, cost exceeded
fair value by $317,000. These adjustments are included in interest revenue in the statements of operations and net assets.
Reclassification
Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.
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M A S T E R R E PAYM E N T A G R E E M E N T C O N T I N U E D
In the Repayment Litigation, the District disputed Reclamation’s cost allocation. If the litigation resumes, the portion of the
District’s repayment obligation that bears interest would be subject to periodic revision by Reclamation based on its cost allo-cations.
Construction Deficiencies
When Reclamation issued notices of completion for the water supply system and regulatory storage facilities stages of the
CAP, a number of construction deficiencies remained. The Stipulation provides that the construction deficiencies will be
corrected without increasing the District’s repayment obligation. The Stipulation identifies those deficiencies that will be
corrected by the United States, at no additional cost to the District, and those that the District will correct itself and for
which it will receive a corresponding credit against its annual repayment obligation. The Stipulation also provides a repayment
credit for the District’s past expenditures to correct construction deficiencies.
In the Repayment Litigation, the District had sought to hold the United States responsible for costs incurred by the District in
correcting CAP construction deficiencies, which totaled $41,884,000 as of December 31, 2000. The United States had
argued that it had no obligation to fund the correction of CAP construction deficiencies because of the dispute regarding
the Repayment Ceiling and the fact that Reclamation had determined that the ceiling had been exceeded. The United States
had also disclaimed any responsibility for costs incurred by the District in correcting those deficiencies.
Application of Development Fund Revenues
The Stipulation provides that all miscellaneous revenues and net power revenues accumulating in the Lower Colorado River
Basin Development Fund (Development Fund) of the United States Treasury in each year will be credited annually against the
amount due from the District on its repayment obligation.
In the Repayment Litigation, the United States had asserted that it was not obligated to apply Development Fund revenues
toward the District’s repayment obligation, but could use those revenues to pay Reclamation’s operating costs.
Payments Due on the District’s Repayment Obligation
The Stipulation establishes a new repayment schedule based on the revised $1.65 billion repayment obligation and reconciles the
District’s past payments, Development Fund credits and construction deficiency credits against that revised payment schedule.
The annual payments due from the District and the credits available from Development Fund revenues, construction deficiency
corrections and other sources were among the issues in dispute in the Repayment Litigation. As of January 15, 2000, there was
a difference of $118,903,000 between the amounts billed by the United States and the amount acknowledged by
Reclamation to have been paid by the District on the District’s repayment obligation. At that time, Reclamation was assessing
penalties of approximately $1,189,000 per month against the District on the amounts in dispute.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
M A S T E R R E PAYM E N T A G R E E M E N T C O N T I N U E D
and litigation will resume. Either party may petition the Court to terminate the Stipulation and resume litigation before the
deadline if it believes the conditions cannot be met by that date. Unless and until the Stipulation is terminated, it is effective
as between the United States and the District. It is not possible to predict whether the Stipulation will become finally effective
or if the litigation will resume or the outcome of any such litigation. If litigation resumes and results in an adverse determination
on any of the major issues raised, it could have a material adverse effect on the financial operations of the District. The major
issues addressed in the Stipulation are described below.
Repayment Obligation
The Stipulation establishes the District’s repayment obligation for the CAP water supply system and the regulatory storage
facilities at $1.65 billion, premised on a total allocation of 665,224 acre-feet of CAP water for federal use. Currently,
453,224 acre-feet of CAP water is allocated for federal use; one condition of the Stipulation is that additional CAP water be
made available for federal use. The Stipulation provides that the $1.65 billion repayment obligation is subject to adjustment
if the total amount of CAP water ultimately made available for Federal use is not 665,224 acre-feet.
In the Repayment Litigation, Reclamation had taken the position that the repayment ceiling in the Master Repayment
Agreement on the District's repayment obligation for the water supply system and the regulatory storage facilities
(Repayment Ceiling) was $2.0 billion. The District had argued that the Repayment Ceiling on these facilities was not more
than $1.781 billion. Notwithstanding the Repayment Ceiling, Reclamation contended that the District's repayment obligation
for these facilities was $2.183 billion, premised on a total allocation of 453,224 acre-feet of CAP water for federal use.
In November 1998, the Court issued an interlocutory order to the effect that the District’s repayment obligation for the
water supply system and regulatory storage facilities is limited to $1.781 billion. However, the United States appealed the
Court order. After the Stipulation was entered, the appeal was voluntarily dismissed without prejudice. The Stipulation
preserves the United States’ appeal rights if the Repayment Litigation resumes.
Interest on Repayment Obligation
The Stipulation provides that 73 percent of the District’s $1.65 billion repayment obligation will bear interest at the rate
established in the Master Repayment Agreement of 3.342 percent per annum, and 27 percent of the repayment obligation
will be non-interest bearing. The Stipulation fixes these percentages for the duration of the repayment period.
Before the Stipulation, the Master Repayment Agreement provided that Reclamation would perform a cost allocation that
would then determine both the amount of the District’s repayment obligation and the portion of that obligation that would
bear interest. Costs allocated to the non-Indian agricultural water supply function were to be repaid by the District without
interest, while costs allocated to the M&I water supply and the power functions were to be repaid with interest at 3.342 percent
per annum. The Master Repayment Agreement also provided that Reclamation would periodically revise its cost allocation
to reflect actual water deliveries, which could have the effect of altering the percentage of the District’s repayment obligation
that bears interest.
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O P E R AT I O N S
Operations and Maintenance Agreement
Reclamation has transferred responsibility for operation and maintenance of completed CAP features to the District.
The District performs these responsibilities under the Master Repayment Agreement, a 1987 agreement with Reclamation
for the operation and maintenance of the facilities (the OM&R Transfer Contract), and an Operating Agreement between
Reclamation and the District that took effect as part of the Settlement Stipulation.
Water Delivery Contracts and Subcontracts
Long-term CAP water service began pursuant to contracts and subcontracts on October 1, 1993, upon issuance by the
Secretary of notice of completion of the water supply system. The term of the contracts and subcontracts is generally 50
years beginning January 1, 1994, and the contracts and subcontracts are renewable.
Long-term subcontracts have been signed by M&I entities for approximately 87 percent of the total CAP M&I water allocation
of 638,823 acre-feet. All ten Indian entities originally allocated CAP water by the Secretary have signed long-term CAP contracts
for the CAP Indian water allocation of 309,828 acre-feet. An additional 355,396 acre-feet of CAP water has been or is
expected to be allocated to Indian entities or treated as Indian water supplies as a result of completed, pending or future
Indian water rights settlements. The remaining available CAP water was allocated to non-Indian agricultural entities.
The cities of Tucson, Phoenix, Mesa, Scottsdale, Peoria and Glendale account for approximately 66 percent of the CAP water
currently under M&I subcontracts.
The non-Indian subcontracts require the payment of a water service capital charge and an OM&R charge. For the M&I
subcontractors, the water service capital charge is applicable to each subcontractor's maximum annual entitlement to CAP
water. Under the current M&I water service subcontracts and current District pricing structure, the M&I water service capital
charge is an escalating charge, beginning at an annual rate of $10.50 per acre-foot of entitlement in 1994 and increasing
to $48 per acre-foot of entitlement by 1999. The M&I water service capital charge was $48 per acre-foot for 2000 and was
reduced to $43 per acre-foot for 2001. The amount of this M&I water service capital charge may be adjusted periodically
by the District as a result of repayment determinations provided for in the Master Repayment Agreement and to reflect all
sources of revenue, but the water service capital charge will not be greater than necessary to amortize project capital costs
allocated to the M&I function with interest. Indian contractors of CAP water pay no water service capital charge, since the
capital costs associated with the delivery of CAP water to Indian entities are not reimbursable by the District pursuant to the
Master Repayment Agreement.
The OM&R costs of the CAP are of two types: energy costs and fixed costs. Energy costs are incurred to pump water from
the Colorado River through the CAP aqueduct system and fixed costs are the non-energy costs associated with operation
and maintenance. The District is currently engaged in a cost of service study to better define what components properly
constitute fixed OM&R costs.
M&I subcontractors and Indian contractors must pay OM&R charges on water scheduled for delivery.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
MA S T E R R E PAYME N T A G R E EME N T C O N T I N U E D 4.
Amounts Recorded in Financial Statements
The repayment obligation and amounts due on that obligation reported in these financial statements reflect the terms of the
Stipulation. If the credit amounts identified in the Stipulation are refined as a result of audit, there could be additional revisions
to the amounts recorded in the financial statements. The District’s repayment obligation and the amounts due could be
adjusted in the future if the Repayment Litigation resumes.
Payments to Maturity
The required payments on the repayment obligation are the following:
Principal Interest Total
2001 $ 20,272 $ 37,055 $ 57,277
2002 20,272 36,365 56,637
2003 20,272 35,724 55,996
2004 21,450 35,083 56,533
2005 21,450 34,403 55,853
Thereafter 1,442,569 579,355 2,021,924
Total $ 1,546,285 $ 757,935 $ 2,304,220
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O P E R AT I O N S C O N T I N U E D
As of December 31, 2000, nine existing and former subcontractors of agricultural CAP water had contracts with the District for
the delivery of CAP water for agricultural purposes on these conditions. The contracts are for a ten year term, but are subject to
(1) the availability of CAP water in each year after first providing for the delivery of water to contractors and subcontractors of
long-term water service, including existing M&I subcontractors, Indian contractors and agricultural subcontractors who retained
a percentage entitlement of CAP agricultural water under their CAP subcontracts, and (2) the determination by the District in
each year of the water service charges. In the Repayment Litigation, the United States disputed the validity of these contracts.
The Stipulation may require certain revisions to the form of these contracts, but otherwise confirms the District’s right to sell
CAP water under such alternative contracts. If the litigation resumes, the validity of these contracts will again be in issue.
In order to facilitate water planning, and subject to the assumptions contained in the Plan, the water service charges to be
charged M&I subcontractors and the United States on behalf of Indian contractors of CAP water service were confirmed in
2000 by the Board of Directors of the District for the period 2001 through 2005. The District's Board of Directors reviews
charges annually and sets a schedule for the succeeding five years. During 1997, the Board amended the Plan to provide for
a computation of the M&I water service charge by dividing the District’s estimated annual operating and energy costs by the
total estimated annual water delivery volume.
If the District is unable to deliver the quantities of water to non-Indian agricultural users assumed in the Plan, OM&R costs allocated
to M&I subcontractors and to the United States on behalf of Indian contractors could be significantly higher than anticipated.
M&I subcontractors use CAP water in their total water supply in various percentages and fund their payment of the District's
charges in a variety of ways. Therefore, it is difficult to estimate the effect of possible increases in the water service charges on
M&I subcontractors and on retail ratepayers, if applicable, including households in the service areas of CAP M&I subcontractors.
The District cannot predict the extent to which any negative reaction toward its water service charges would be mitigated by
considerations such as the essential nature of providing an assured long-term water supply and the availability (or lack thereof)
of alternative water sources at competitive costs.
A failure of the District to receive payment of water service charges necessary to pay CAP OM&R costs, coupled with an inability
of the District to mitigate the impact of such failure by other means, could have a material adverse effect on the District.
POWER
Navajo Power Plant
Reclamation is one of six participants in Navajo. Navajo consists of three 750,000 kilowatt coal-fired steam-electric generating
units which commenced operations in 1974 through 1976, a railroad to deliver fuel and 500 kilowatt transmission lines and
switching stations to deliver the power and energy to the various participants. An agreement among the participants governs
the construction, operation, and maintenance of Navajo. Reclamation entered into this agreement in order to acquire a portion
of the capacity of Navajo for supplying the power requirements of the CAP. Reclamation has a 24.3 percent entitlement in
the generating station, resulting in a power entitlement of 547,000 kilowatts of nominal capacity. The District is charged for
the costs associated with the energy used to operate the CAP.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
5.
O P E R AT I O N S C O N T I N U E D
The District anticipates that Indian entities, or the United States on behalf of the Indian entities, will pay Indian fixed OM&R
charges. Payment by the United States of Indian fixed OM&R charges would require annual appropriations by Congress or
specific net billing arrangements that do not currently exist. The United States has paid OM&R charges on water delivered to
the Ak-Chin Indian Community. Disputes that existed with respect to the amounts of those charges and the proper method
of calculating OM&R charges were conditionally resolved as part of the settlement Stipulation.
District Repayment Plan
An important assumption in the development of the CAP was that non-Indian agricultural water users would take and pay for
significant quantities of CAP water, particularly during the early years of project operation when M&I and Indian uses of CAP
water were expected to be relatively low. The Secretary's allocation of CAP water, the physical configuration of the water delivery
system, and the financial structure of the CAP were predicated upon such participation by non-Indian agricultural water users.
Long-term subcontracts for approximately 70 percent of the total non-Indian agricultural CAP water supply were signed. Two
irrigation districts represented approximately 38.5 percent of that total. The non-Indian agricultural CAP subcontracts have
been understood to require those subcontractors to pay fixed OM&R charges based on the full amount of CAP water available
for delivery to the subcontractor, not just the amount scheduled for delivery (the take-or-pay OM&R charges), plus energy
charges and a $2 per acre-foot water service capital charge for water scheduled for delivery. Many of the District's non-Indian
agricultural subcontractors indicated that the take-or-pay requirement and the cost of CAP water would result in substantial
reductions in CAP water use by the agricultural subcontractors and potential default by the subcontractors on their obligations
under the subcontracts. Under the Master Repayment Agreement, prior to its modification by the Stipulation, diminished use
of CAP water by non-Indian agricultural water users would also have increased the interest bearing portion of the District’s
repayment obligation and would have reduced the number of revenue sources available to meet the District's repayment
obligation and to pay the OM&R costs of the CAP. Furthermore, OM&R costs would be allocated among fewer users, which
would result in significantly higher per acre-foot charges to the remaining users.
As a result of these circumstances, the District's Board of Directors adopted a repayment adjustment plan in October 1993
(Plan). Under the Plan, each non-Indian agricultural subcontractor was provided the opportunity to waive its percentage
entitlement to CAP agricultural water under its CAP subcontract and avoid its corresponding obligation for take-or-pay
OM&R charges. As of December 31, 2000, all of the remaining non-Indian agricultural subcontractors had waived some or
all of their long-term entitlements to CAP agricultural water under their CAP subcontracts. The District in turn waived its
right to collect take-or-pay OM&R charges from such subcontractors.
Existing and former subcontractors of non-Indian agricultural CAP water were also given the opportunity by the District to enter
into alternative contracts for the delivery of CAP water on a short-term basis. Under the Plan, the pool of CAP water available for
delivery to non-Indian agricultural water users has been divided into various categories for purposes of determining water delivery
priority and water service charges. Water service charges are assessed only on the amount of CAP water scheduled for delivery.
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requirements exceed the threshold, the District must purchase additional energy either from Salt River Project or through other
energy sources. Under the contract, Salt River Project pays a monthly charge of $1,812,500 to the Development Fund. The District
records these revenues as funds held by the federal government as of December 31 of each year and then applies them against the
annual payment due from the District under the Master Repayment Agreement the following January 15. The extent to which such
revenues must be applied against the annual payments due from the District under the Master Repayment Agreement is among
the issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation (Note 3).
Hoover Surcharge
The Hoover Act also provided for the addition of a surcharge to the rates for energy sold from the Hoover and Parker-Davis
power plants of 4.5 mills per kilowatt-hour for energy sold in Arizona. Revenues from the surcharge on Hoover power sales
began in 1987 and revenues from Parker-Davis power sales will begin in 2005. Revenues from this surcharge are credited to
the Development Fund. The District records these revenues as funds held by the federal government as of December 31 of each
year and then applies them against the annual payment due from the District the following January 15. The extent to which such
revenues must be applied against the annual payments due from the District under the Master Repayment Agreement is among
the issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation (Note 3).
I N V E S T M E N T S
As a multi-county water conservation district, the Arizona State Treasurer as prescribed by the District’s enabling act holds
the District’s investments. Beginning March 1, 2000, the District’s investments in the CAP pool were transferred to a shared
investment pool (Pool 3) in order to eliminate the need for a separate pool just for the District. Since the investment policy
objectives of the two pools are identical, the District does not anticipate any material impact on safety of principal, liquidity,
or return on investment. The investment policy objectives of the Arizona State Treasurer, in order of priority, are safety of
principal, liquidity, and return on investments.
Investments held by the CAP pool (as of December 31, 1999) and Pool 3 (as of December 31, 2000), which are categorized
for the District, consist of the following stated at fair value:
2000 1999
Federal Agency Securities $ 10,732 $ 37,700
Commercial Paper 32,716 31,341
Corporate Securities 165,891 140,172
209,339 209,213
Less restricted funds (repayment and operating reserves) (36,377) (31,615)
Less investment of state of Arizona — (4,121)
Investment of District $ 172,962 $ 173,477
The Board of Directors has designated $86,700,000 of the Pool 3 investments as capital projects and operating reserve
funds, and $2,000,000 as insurance reserves (see Note 11) at December 31, 2000.
( I n t h o u s a n d s )
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
6.
P O W E R C O N T I N U E D
Hoover B Power Purchases
The 1984 Hoover Power Plant Act (Hoover Act) authorized upgrading the Hoover power plant, located at Hoover Dam,
to increase generating capacity at the plant by 503 megawatts (MW). This additional capacity and its associated energy is
known as Hoover B Power. The Hoover Act allocated 188 MW and 212,000 megawatt hours (MWh) of associated firm
annual energy of the Hoover B Power to purchasers in Arizona. The Arizona Power Authority (Authority) distributes Arizona's
share of the Hoover B Power. On September 15, 1986, the District entered into a contract with the Arizona Power Authority
for the purchase of Hoover B Power. On October 1, 1992, the Authority recaptured all but 26.5 MW of Hoover B Power
from its other contractors and initiated delivery of available Hoover B Power to the District.
Power Revenues
Power revenues are derived from the sale of surplus power from Navajo (power associated with Reclamation's Navajo entitlement which
is in excess of the pumping requirements of the CAP) and from a surcharge on energy sold in Arizona from the Hoover power plant.
Additional Rate Component
The Hoover Act authorized the establishment and collection of additional rate components on sales and exchanges of the
capacity and energy associated with Reclamation's Navajo entitlement in excess of the pumping requirements of the CAP
and any needs for desalting and protective pumping facilities as may be required under the Colorado River Basin Salinity
Control Act (Navajo surplus). The Hoover Act further authorized the payment of revenues from such additional rate components
to entities that have advanced funds for the construction and repayment of construction costs of the CAP.
The Secretary determined that the excess capacity and energy, which constitutes Navajo surplus to be marketed pursuant to
long-term contracts, is 400,000 kilowatts of capacity and 760 kilowatt hours of energy per year per kilowatt of such capacity.
The District and Reclamation entered into power sales contracts with Salt River Project Agricultural Improvement and Power
District (Salt River Project) in 1990 and 1991 for the sale of an aggregate of 350,000 kilowatts of such capacity and the
associated energy from May 1993 through September 2011.
The additional rate component on the sale of such capacity has been established by the District at $6 per kilowatt of allocated
capacity per month. Revenues from the additional rate component are paid directly to the District's bond trustee to repay
the contract revenue bonds sold by the District (Note 10).
Sale of Remaining Navajo Surplus
In March 1994, the District entered into a contract with Salt River Project, Reclamation and the Department of Energy for the
sale of the remaining Navajo surplus. The contract, which is for the period June 1994 through September 2011, grants Salt
River Project the use of the remaining United States entitlement to output of the Navajo Generating Station, the right to
schedule and integrate with the Salt River Project system the District's contractual (rights to Hoover capacity and energy) and
to (energy produced at New Waddell Dam), and certain transmission rights, and requires Salt River Project to sell energy at
cost to the District to meet CAP pumping requirements up to a defined threshold level for each contract year. If CAP energy
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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State Demonstration Projects
The Arizona Legislature passed the original State Demonstration Recharge legislation in 1990 that authorized the District to
levy an ad valorem tax of 4 cents per $100 assessed valuation in Maricopa and Pima counties. Tax revenues collected
through 1996 were deposited in the Arizona Water Storage Fund. Costs incurred by the District for planning and developing
State Demonstration Recharge projects continue to be reimbursed from this fund.
The District is developing multiple State Demonstration Recharge Projects pursuant to its responsibilities under the 1990
legislation. During 2000, three recharge projects were operational, two projects were in the planning and design phase and
two projects were undergoing feasibility study. State Demonstration Recharge Projects directly benefit the economy of the
state of Arizona by storing currently unused CAP water underground to provide an additional source of water supply for
future periods of shortage. Municipal water providers, the Central Arizona Groundwater Replenishment District and the
Arizona Water Banking Authority contract with the District to purchase and store water at the recharge projects.
Arizona Water Banking Authority
In April 1996, the State Demonstration Project statute was amended by the Arizona Legislature. The amended statute created
the Arizona Water Banking Authority (AWBA) for the purpose of increasing the utilization of Arizona’s allocation of Colorado
River water by delivering excess CAP water to various groundwater recharge projects through the CAP canal system. The
amended statute expanded the District’s ad valorem taxing authority to include Pinal County in addition to Maricopa and
Pima counties and created the Arizona Water Banking Fund. The amended statute directs the District to transfer revenues
derived from this tax to the Arizona Water Banking Fund to fund AWBA activities if the District’s Board of Directors approves
the levy and concludes that the revenues are not needed for CAP operations or CAP repayment. Pursuant to this authority,
the District levied an ad valorem tax of 4 cents per $100 assessed valuation in Maricopa, Pinal, and Pima counties in 1999
and 2000 and approved the transfer of these revenues to the Arizona Water Banking Fund (Note 1). During 2000 and 1999,
the District sold 293,576 and 251,943 acre-feet of excess CAP water to the AWBA at $44 and $43 per acre-foot, respectively,
for underground storage.
ADVA N C E S T O F E D E R A L G O V E R N M E N T
At December 31, 2000 and 1999, the District has incurred $5,930,000 and $5,022,000 in costs related to repairs of CAP
construction deficiencies which have been recorded in the accompanying financial statements as advances to the federal
government. The District applied these amounts against its annual payments due under the Master Repayment Agreement
on January 15, 2001 and 2000, respectively. On a cumulative basis, the District has incurred costs of $41,884,000 for the
correction of CAP construction deficiencies and applied this amount against its annual payments under the Master
Repayment Agreement. Under the Stipulation, credits available for application against the amounts due from the District
are subject to audit by the United States (see Note 3).
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
8.
R E S T R I C T E D A S S E T S
Restricted assets, including accrued interest receivable, consist of the following:
D E C E M B E R 3 1
2000 1999
Bond trust funds, primarily debt service funds $ 39,066 $ 37,008
State Demonstration Project fund 17,908 18,674
Master Repayment Agreement repayment and operating reserves 36,377 31,891
Ak-Chin fund 5,389 5,053
$ 98,740 $ 92,626
Bond trust funds held by the trustee may be invested in direct obligations of, or obligations guaranteed by the U.S. government,
FNMA or FHLMC securities, certificates of deposit, obligations of any state or political subdivision, or a guaranteed investment
contract, all subject to meeting certain ratings by national agencies, and maximum maturity limits. The trustee holds the
investments in trust for the District and the bondholders pursuant to the trust agreements.
Ak-Chin Fund
In August 1985, the District's Board of Directors approved participation in a fund established pursuant to legislation enacted
by the Congress of the United States for the acquisition or conservation of water to supplement CAP water supplies (Ak-Chin
fund). The District and the United States Government each have contributed $1,000,000 to this fund, which is administered
by the District. The District, acting as administrator of the fund, is empowered to direct the expenditure of the trust funds in
accordance with the provisions of a trust agreement between the District and the Arizona State Treasurer.
The Ak-Chin fund investment is in the LGIP, which invests primarily in certificates of deposit, commercial paper, federal
government and federal agency securities. Investments in the LGIP are recorded at cost as they consist of investments with
maturities of less than one year.
Repayment and Operating Reserves
The District is required under the terms of the Master Repayment Agreement to establish and fund over a ten-year period
(1) an operations and maintenance reserve fund of $4,000,000 for extraordinary costs of operations, maintenance and
replacement of project works, and (2) a repayment reserve fund of $40,000,000 for the purpose of assuring payments of
future obligations. Funding of the operations and maintenance reserve fund and repayment reserve fund commenced on
October 1, 1993 and July 1, 1993, respectively. At December 31, 2000, the fair value of the reserves totaled $3,321,000,
and $33,005,000, respectively, including interest.
7.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
( I n t h o u s a n d s )
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B O N D S PAYA B L E
Bonds payable consist of the following:
D E C E M B E R 3 1
2000 1999
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series A 1990 (1990 Bonds) (original maturity amount of
$71,895,000, excluding 1990 Bonds which have been refunded), due in
varying annual amounts through 2011; interest rates vary among individual
maturities ranging from 6.90 percent to 7.40 percent
Serial $ 9,985 $ 14,215
Special term 8,305 11,244
Capital appreciation (maturity value of $11,760,000) 7,230 6,733
25,520 32,192
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series B 1991 (1991 Bonds) (original maturity amount of
$80,045,000, excluding 1991 Bonds which have been refunded), due in
varying amounts through 2011; interest rates vary among individual
maturities ranging from 5.80 percent to 6.80 percent
Serial 20,701 26,793
Term 109 109
Capital appreciation (maturity value of $23,095,000) 17,072 15,979
37,882 42,881
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series A 1993 (1993 Bonds) (original maturity
amount of $106,535,000), due in varying annual amounts through 2010; interest
rates vary among individual maturities ranging from 4.05 percent to 5.50 percent 92,327 94,096
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series B 1994 (1994 Bonds) (original maturity
amount of $53,430,000), due in varying amounts through 2009; interest rates
vary among individual maturities ranging from 3.50 percent to 4.75 percent
Serial 32,408 33,859
Subordinate serial 5,812 6,347
Deferred loss on refunding (4,126) (4,678)
34,094 35,528
189,818 204,697
Less current portion (18,050) (17,250)
$ 171,768 $ 187,447
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
10.
( I n t h o u s a n d s )
UNDERGROUND WAT E R S T O R A G E A N D R E C O V E RY
In 1992, the District entered into an agreement with the Metropolitan Water District of Southern California (MWD) and
subsequently with Southern Nevada Water Authority (SNWA), whereby up to an aggregate of 100,000 acre-feet of interstate
underground water storage credits would be set aside for potential assignment to MWD and SNWA if the Secretary declares
a surplus of Colorado River water. Once assigned, MWD and SNWA can recover these credits in years in which the Secretary
has declared a normal supply of Colorado River water. The water will be delivered through exchange of the interstate underground
water storage credits back to the District for diversion of water from the Colorado River by MWD and SNWA. The District
must reduce its maximum level of diversions from the Colorado River equal to the amount diverted by MWD and SNWA.
In 1995, an amendatory agreement was executed between the District and MWD increasing the amount of water that can
be stored from 100,000 acre-feet to 300,000 acre-feet of water and the time for placing the water into storage from
December 31, 1996 to December 31, 2000. As of December 31, 1995, the District had received $11,386,000 related to
139,000 acre-feet that was recorded as a reduction in the costs capitalized in connection with the underground water storage
projects. As of December 31, 1998, all of the 139,000 acre-feet of underground storage credits were assigned to MWD
(89,000 acre-feet) or SNWA (50,000 acre-feet). MWD and SNWA can recover these credits in future years in which the
Secretary declares a normal supply of Colorado River water. When this occurs, the District would reduce its diversions from
the Lower Colorado River by the amount of credits being recovered and execute a plan to recover and deliver an equal volume
of stored credits in lieu of Colorado River water that would have been pumped.
On November 1, 1999, the Secretary of the Interior adopted a final rule entitled Offstream Storage of Colorado River Water
and Development of Intentionally Created Unused Apportionment in the Lower Division States. These regulations became
effective on December 1, 1999, and authorized the AWBA to engage in interstate banking of Colorado River water in cooperation
with other states of the Lower Division. An agreement is being developed which allows the District to intentionally create
unused apportionment for the specific purpose of facilitating interstate banking of Colorado River water in Arizona by Nevada
and California. Interstate banking agreements are also being developed with these states.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
9.
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B O N D S PAYA B L E C O N T I N U E D
Debt service requirements to maturity, which include the sinking fund requirement and interest of $49,556,000 are as follows:
Years ending 2001: $27,374,000; 2002: $27,321,000; 2003: $27,321,000; 2004: $27,321,000; 2005-2006: $54,642,000;
2007-2011: $91,411,000.
In April 1993 and February 1994, the District refinanced through advanced refunding arrangements approximately
$89,545,000 and $44,525,000 of outstanding 1990 bonds and 1991 bonds, respectively. The net proceeds were used to
purchase U.S. Government securities. Those securities were deposited in an irrevocable trust to provide for all future debt
service payments on the refunded 1990 Bonds and 1991 Bonds. As a result, the refunded 1990 Bonds and 1991 Bonds are
considered to be defeased and the liability for those bonds of $134,070,000 at December 31, 2000 has been removed from
the balance sheet.
The District has deferred the accounting loss of $8,109,000 related to the 1991 bonds. The accounting loss is amortized to
income on the interest method over the life of the new bonds.
C O M M I T M E N T S A N D C O N T I N G E N C I E S
Insurance Reserve
The District's Board of Directors has designated $2,000,000 of noncurrent unrestricted investments to act as a reserve for
property and liability damages to be available to respond to any claims, judgments, and related costs against the District, its
officers, directors, and employees, if any, in excess of the outstanding insurance coverage.
Litigation
The District is a party to certain litigation and other proceedings that could have the effect of increasing the District’s costs or
reducing or eliminating certain sources of revenues available to the District to meet those costs. The most significant of these
is the Repayment Litigation with the United States, in the event that the conditions to the Stipulation are not satisfied, or if
the Stipulation terminates and litigation resumes for any other reason (Note 3).
P E N S I O N P L A N S
Retirement benefits are provided to District employees through two separate plans as of December 31, 2000. Benefits were
provided for service prior to July 1, 1998, through the Central Arizona Water Conservation District Retirement Plan (the
District Plan) and from July 1, 1998 through December 31, 2000, through the Arizona State Retirement System. Employees
retired or terminated prior to July 1, 1998, or their beneficiaries, continue to be provided benefits through the Central
Arizona Water Conservation District Retirement Plan.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
11.
B O N D S PAYA B L E C O N T I N U E D
Changes in bonds payable during the year ended December 31, 2000, are summarized below:
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
BALANCE BALANCE AMOUNTS DUE
DECEMBER 31 ACCRETION AND DECEMBER 31 WITHIN ONE
1999 REDEMPTION AMORTIZATION 2000 YEAR
1990 Bonds
Serial $ 14,215 $ 4,230 $ — $ 9,985 $ 7,710
Special term 11,244 3,000 61 8,305 —
Capital appreciation 6,733 — 497 7,230 —
1991 Bonds
Serial 26,793 6,110 18 20,701 6,490
Term 109 — — 109 —
Capital appreciation 15,979 — 1,093 17,072 —
1993 Bonds 94,096 1,845 76 92,327 1,750
1994 Bonds
Serial 33,859 1,525 69 32,403 1,595
Subordinate serial 6,347 540 5 5,812 505
Deferred loss (4,678) — 552 (4,126) —
$ 204,697 $ 17,250 $ 2,371 $ 189,818 $ 18,050
The 1990 Bonds and 1993 Bonds are secured by a pledge of revenues, and related interest thereon, from the additional rate
component charged by the District to the Salt River Project on the sale of 200 MW of allocated capacity of surplus power
associated with Reclamation's 24.3 percent entitlement in Navajo. The 1991 Bonds and 1994 Bonds are secured by a similar
pledge of revenues from the additional rate component charged Salt River Project on the sale of an additional 150 MW of
allocated Navajo capacity (Note 5).
The 1990 and 1991 Capital Appreciation Bonds and 1993 Bonds are noncallable. The remaining 1990 and 1991 bonds are
subject to optional redemption commencing in 2000 at a price of 102 percent with a declining price to par in 2003, except
for $2,500,000 of the special term bonds due in 2011, which are redeemable at par after 2000. The 1994 Bonds are subject
to optional redemption commencing in 2004 at a price of 102 percent with a declining price to par in 2006.
The 1990 Special Term Bonds aggregating $2,500,000 and the 1991 Term Bonds are subject to sinking fund requirements
and mandatory redemption equal to the amount of any unsatisfied portion of the sinking fund requirement.
( I n t h o u s a n d s )
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12.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
P E N S I O N P L A N S C O N T I N U E D 12.
Central Arizona Water Conservation District Retirement Plan
The District maintains the Central Arizona Water Conservation District Retirement Plan, a single-employer defined benefit
pension plan covering substantially all of its employees who retired or terminated prior to July 1, 1998.
The District's Board of Directors amended the District Plan on May 7, 1998, providing certain changes in benefits. The
amendment provides that active employees as of June 30, 1998, are eligible to participate in the District Plan as of their date
of employment. No credited service is earned or credited for any period of employment after July 7, 1998. Upon normal
retirement date, participants are entitled to a retirement income equal to 2 percent of their average monthly compensation
multiplied by years of service. Average monthly compensation is the average of monthly compensation during the 36 con-secutive-
month period within the last 120-month period of service that yields the highest average. The change in the present
value of accumulated benefits as a result of these amendments totaled $5,014,114 at December 31, 1998. There were no
amendments in 1999 or 2000.
All active employees of the District Plan were given the option to transfer their accounts from the District Plan to the Arizona
State Retirement System Plan as of July 1, 1998. All active employees elected to transfer their accounts to the Arizona State
Retirement System Plan. Accordingly, funds in the amount of $18,581,000 were transferred from the District Plan to the
Arizona State Retirement System Plan in February 1999.
The District Plan also offers certain early retirement options and death benefits. These benefit provisions and all other requirements
are established by the District’s Board of Directors. The District Plan does not issue a stand-alone financial report.
As of December 31, 2000, there were 97 participants in the District Plan. There were 19 retirees and beneficiaries receiving
benefits and 53 terminated members and beneficiaries entitled to, but not yet receiving benefits.
The net pension benefit obligation and annual pension cost were computed as part of an actuarial valuation performed as of
January 1, 2000, the beginning of the District Plan’s year. The District Plan’s pension liability was determined in accordance
with the provisions of Governmental Accounting Standards Board Statement No. 27. Significant actuarial assumptions used
in the valuation include a rate of return on the investment of present and future assets of 6.5 percent a year compounded
annually, and projected salary increases of 4.0 percent a year compounded annually. In previous years, the District’s liability
was calculated as of the end of each plan year. Beginning in 1999, the liability is calculated looking forward at the beginning
of each plan year.
The District's funding policy provides for an actuarially determined contribution within the range of contributions as specified
under the Internal Revenue Code. The contribution for normal cost is determined using the entry-age normal cost method.
The District uses the level percentage of payroll method to amortize the unfunded liability. Beginning in 1998, the District
elected to change the amortization period for the unfunded liability from 30 to 15 years.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as
those used to compute the pension benefit obligation. Contributions to the District Plan for the years ended December 31, 2000
and 1999, were approximately $64,000 and $72,000, respectively, each of which was made in accordance with actuarially
determined requirements. The District records the actuarially determined contributions for the Plan year as an expense in
the corresponding year.
P E N S I O N P L A N S C O N T I N U E D
The annual pension cost and net pension obligation for 2000 are as follows:
Annual required contribution for 2000 $ 63,978
Adjustment to annual required contribution 559
Annual pension cost 64,537
Contributions made for 2000 (63,978)
Increase in net pension obligation 559
Net pension obligation, beginning of year (12,643)
Net pension obligation, end of year $ (12,084)
December 31, 1997 $ 1,720,578 $ 1,718,833 99.9% $ (13,633)
December 31, 1998 629,941 629,466 99.9 (13,158)
December 31, 1999 72,564 72,049 99.3 (12,643)
December 31, 2000 64,537 63,978 99.1 (12,084)
December 31, 1997 $ 16,322,894 $ 17,951,007 $ 1,628,113 90.93% $ 18,221,264 8.94
December 31, 1998 20,407,198 26,710,573 6,303,375 76.40 19,846,370 31.76
January 1, 1999 21,036,664 21,686,104 649,440 97.01 19,470,069 3.34
January 1, 2000 2,687,777 3,237,970 550,193 83.01 221,649* 248.23*
Trend information for the District Plan years ended December 31, 1997 through 2000 is as follows:
PERCENTAGE OF
ANNUAL PENSION
ANNUAL AMOUNT COST NET PENSION
YEAR ENDING PENSION COST CONTRIBUTED CONTRIBUTED OBLIGATION
The actuarial value of the District Plan assets and actuarial accrued liabilities for plan years ended December 31, 1997
through 2000 are as follows:
ACTUARIAL VALUE UNFUNDED
OF ASSETS AS ACTUARIAL ACCRUED
UNFUNDED PERCENTAGE OF LIABILITY AS
ACTUARIAL ACTUARIAL ACTUARIAL ANNUAL PERCENTAGE OF
VALUATION ACTUARIAL VALUE ACCRUED ACCRUED ACCRUED COVERED ANNUAL COVERED
DATE OF ASSETS LIABILITY LIABILITY LIABILITY PAYROLL PAYROLL
%
* During 1999, all but 4 active participants elected to forfeit all benefits under this plan in exchange for receiving credited service in the Arizona State
Retirement System for service accrued through June 1998 in this plan. The majority of remaining liabilities under this plan is for inactive participants.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
P E N S I O N P L A N S C O N T I N U E D
The actuarial value of assets represents the market value as determined by the District Plan trustee. Investments with the
Federal Home Loan Mortgage Corporation exceed 5 percent of total investments.
Arizona State Retirement System Plan
Effective July 1, 1998, the District became a member of the Arizona State Retirement System (ASRS), a cost-sharing, multi-ple-
employer, public employee retirement system established by the State of Arizona to provide benefits for employees of the
State and participating political subdivisions and school districts. The ASRS Board administers the Arizona State Retirement
System Plan (ASRS Plan), which is a defined benefit pension plan. The ASRS Plan provides for retirement, disability, health
insurance premium benefits, and death and survivor benefits as established by State statute. Substantially all employees of
the District are covered by the ASRS Plan.
The ASRS Plan issues a Comprehensive Annual Financial Report, including financial statements and supplemental information,
which may be obtained by writing to Arizona State Retirement System, 3300 North Central Avenue, P.O. Box 33910, Phoenix
Arizona 85067-3910 or by calling (602) 240-2000 or 1-800-621-3778.
The Arizona Revised Statutes provide statutory authority for determining the employees’ and employers’ contribution amounts
as a percentage of covered payroll. Employers are required to contribute at the same rate as employees. The employee and
employer contribution rates for the ASRS Plan year ending June 30, 1999 were set at 3.34 percent, and for the Plan years
ending June 30, 2000 and June 30, 2001, were set at 2.66 percent of covered wages as determined by an actuarial computation
based on June 30, 1998 information. Contributions for 2000, 1999, and 1998, were $1,252,933, $1,411,536, and $695,054,
respectively, for both employees and the District. The District pays both the employee and employer portions of the contribution.
Post Employment Benefit Plan
The District provides post employment health care benefits to employees who are eligible for monthly retirement benefits
under the pension plan and who have received coverage under the District’s group medical plan for at least five years preceding
retirement. Coverage is also available to the employee’s legal spouse provided that certain conditions are met and to other
dependents as required by law. This post employment benefit plan is funded on a pay-as-you-go basis and there are currently
11 employees eligible to receive benefits. The current annual cost is $19,800 per year. Based on life expectancies, the District
recorded an expense and a liability of $313,000 during 2000.
D E F E R R E D C O M P E N S AT I O N A N D S AV I N G S P L A N
The District has adopted and maintains the Central Arizona Water Conservation District Savings Plan (Savings Plan) in
accordance with Section 401(k) of the Internal Revenue Code. The Savings Plan was amended by the District Board of
Directors on May 6, 1999 to provide that all active, nonunion employees are eligible to participate as of their date of
employment. The Savings Plan was further amended on December 7, 2000 to clarify that certain temporary and part-time
employees do not participate.
13.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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D E F E R R E D C O M P E N S AT I O N A N D S AV I N G S P L A N C O N T I N U E D
Eligible employees are allowed to contribute up to 16 percent of their biweekly compensation, and the District has agreed to
contribute to an employee’s account an amount equal to one-half of the amount contributed by the employee up to three
percent of the employee’s biweekly compensation. Contribution expense for the Savings Plan for the years ended December
31, 2000 and 1999 was approximately $629,000 and $598,000, respectively (2.7 percent of payroll expense for each plan
year). Accrued benefits attributable to the District’s contributions on behalf of participants vest 20 percent for each year of
completed service.
The District’s payroll expense for employees covered under the Savings Plan was $23,501,000 and $22,151,000 for the plan
years ended December 31, 2000 and 1999, respectively.
O M & R C O S T R E C O N C I L I AT I O N
In accordance with CAP M&I and agricultural subcontracts, the District annually estimates its OM&R costs for the following
year and uses that estimate along with projected water deliveries to establish water service OM&R charges for that following
year. The subcontracts also provide that the District will determine whether its actual OM&R costs for each year differed from
the estimated OM&R costs that were used to establish water charges for that year, and the District will make adjustments in
the following year’s charges to account for any difference identified.
The District has determined that the annual OM&R cost reconciliations should include a reconciliation of both fixed OM&R
and pumping energy costs for each year to charges for each year previously established based on estimates.
The Stipulation specifies that actual OM&R costs allocable to Federal customers are to be reconciled on a basis consistent
with the methodology used in each applicable year to assess charges. Reconciliations through 1999 were communicated in
January 2001, and customers were given a choice between receiving a credit or a refund. Beginning with 2000, annual costs
are to be calculated and refunded, surcharged or offset, as the case may be, by May 30 of the following year.
The District recorded a provision at December 31, 1999 for its estimated OM&R reconciliation obligation through 1999 in the
total amount of $18 million. Subsequently, the District completed its analysis of OM&R costs through December 31, 2000
and determined that the actual OM&R obligation through 1999 was $15.6 million and for 2000 the obligation is $707,500.
Consequently, the District recorded a revenue item in 2000 in the amount of $1.7 million corresponding to the reduction in
its OM&R reconciliation liability.
14.
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
FINANCIAL HIGHLIGHTS
• Water deliveries for 2000 totaled 1.540 million acre-feet, an increase of 23% over 1999 deliveries. Deliveries for
2000 set a new record, exceeding the previous record of 1.365 million acre-feet set in 1997.
• Total net assets increased by 11% to $155 million in 2000. In 1999, total net assets decreased by 11% to
$140 million, primarily due to a provision of $18 million to refund amounts charged to customers in excess
of actual 1993-1999 operations, maintenance and replacement (OM&R) costs.
• Total expenses for 2000 declined by 1% to $173 million (excluding the OM&R provision for 1993-1998 in the
amount of $16 million from the comparison). The reduction was due primarily to lower interest and amortization
expense as a result of the District's repayment settlement, partially offset by higher power expenses related to
higher water deliveries. Total revenues for 2000 increased by 8% to $189 million, due to increased water deliveries
and interest income as a result of the settlement.
• Operating income for 2000 increased by 19% to approximately $21 million (excluding the OM&R provision
for 1993-1998 from the comparison).
• Unrestricted cash and investments for 2000 decreased by 2% to $179 million. During 1999, unrestricted cash
and investments declined by 9%.
USING THE FINANCIAL STATEMENTS
As a business-type activity, the District’s annual financial reporting includes the basic financial statements and accompanying notes
for enterprise funds. The District reports on a calendar year basis. All financial statements are presented on a comparative basis
for 2000 and 1999. The statements of net assets summarize the District’s current and long-term obligations (liabilities) and the
assets available to meet those obligations. The difference between total assets and total liabilities represents the District’s net
assets. The statements of revenues, expenses and changes in fund net assets summarize the District’s operating and non-operating
expenses for the year and the revenues that were available to cover those expenses, as well as changes in net assets. The state-ments
of cash flows summarize the District’s uses of cash during the year and the sources of cash available to finance those uses.
The statements of cash flows, as cash based statements, include reconciliations to the statements of revenues, expenses and
changes in fund net assets, which are prepared on an accrual basis. Consolidating schedules of net assets and statements of rev-enues,
expenses and changes in fund net assets, which provide more detailed information on the District’s designated financial
activities, are included after the notes to the financial statements.
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THE DISTRICT’S FINANCIAL ACTIVITIES
The District accounts for its financial activities in conformity with generally accepted accounting principles as applicable to a
government “enterprise fund.” This accounting treatment applies because the District’s activities are primarily business-like in
nature. Under enterprise fund accounting, the District is a single accounting entity for financial reporting purposes. However,
within this single accounting entity the District has identified a number of financial activities that it wishes to track separately,
referred to as "funds," which are actually separate accounts. These funds are as follows: General Fund, CAGRD Fund, State
Demonstration Project Fund, Ak-Chin Fund and several Bond Funds. The use of the term "fund" for these separate activities
does not have any particular accounting significance. The District is not required to and does not publish separate financial
statements for any of the individual funds, except for the consolidating schedules referenced above.
The General Fund represents the District’s primary activity, the delivery of Colorado River water to central Arizona through
the Central Arizona Project (CAP) and is, by an order of magnitude, the largest fund within the District. The CAGRD Fund
represents the activities of the Central Arizona Groundwater Replenishment District. The State Demonstration Project Fund
represents the activities related to the construction of State Demonstration underground water recharge projects. The Ak-
Chin Fund represents the activities related to a trust fund established to acquire or conserve water to supplement Colorado
River supplies. The Bond Funds represent the activities related to several revenue bond series issued by the District. Please
refer to the notes to the financial statements for additional information on these funds.
THE DISTRICT AS A WHOLE
The District’s total assets as of December 31, 2000 were approximately $2.0 billion. Current assets, including cash, inventory
and receivables, were approximately $65 million, including a $36 million credit for overpayments in prior years arising from
the repayment settlement. The largest component of the District’s long-term assets was the permanent service right, net of
accumulated amortization, in the amount of $1.59 billion. The permanent service right is the asset representing the District’s
right to operate the CAP system and collect revenues from operations, for which the District has incurred a repayment obli-gation
to the United States. Other asset categories include restricted and unrestricted reserves and investments, funds held
by or advanced to the Federal government and property and equipment.
While property and equipment assets grow annually as a result of ongoing capital projects, such additions are more than off-set
by amortization of the permanent service right, which is approximately $31 million per year. As a result, total assets tend
to decrease each year.
CENTRAL ARIZONA WATER CONSERVATION DISTRICT
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2000
The following is management’s discussion and analysis of the 2000 financial performance of the Central Arizona Water
Conservation District (the District). It provides an overview of the District’s financial activities and financial condition for the
year and should be read in conjunction with the District’s financial statements and accompanying notes.
p 48 p 49
( I n $ M i l l i o n s )
S TATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
All Funds
2000 1999
Operating revenues $ 144.0 $ 137.7
Operating expenses (123.4) (120.4)
Operating income before
unusual expense item 20.6 17.3
Unusual item –
OM&R reconciliation — (16.0)
Operating income after unusual expense item 20.6 1.3
Non-operating revenues 44.7 37.1
Non-operating expenses (49.9) (54.8)
Total non-operating revenues (expenses) (5.2) (17.7)
Change in net assets $ 15.4 $ (16.4)
Operating revenues for 2000 grew by 5% over 1999, primarily due to increased water deliveries. Operating expenses for
1999 grew by 2% over 1999, primarily due to increased power purchases associated with increased water deliveries. Total
operating income for 2000 (before an unusual expense item) grew by 19% over 1999. In 1999, an unusual expense item of
$16 million was recognized for reconciliation of actual 1993-1998 OM&R costs to amounts charged to customers. Estimated
OM&R reconciliation costs for 1999 of $2 million were included in 1999 operating expenses.
Non-operating revenues for 2000 increased by 18% over 1999, primarily because of increased interest earned on the repay-ment
credit arising from the repayment settlement. Non-operating expenses for 2000 decreased by 10% from 1999 due to
the decrease in the District’s repayment obligation as a result of the repayment settlement. In the near term, under current
rate setting practices and assuming constant reserve levels, the District’s consolidated change in net assets can generally be
expected to be positive. However, because rates are set in advance and water deliveries fluctuate based on weather condi-tions
and other factors, actual results may vary. Please see the discussions under "General Fund," "State Demonstration
Projects" and "Bond Funds" below for additional information.
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
p 50 p 51
N E T A S S E T S
All Funds
( $ M i l l i o n s )
2000 1999
Cash and Investments $ 277 $ 276
Receivables 40 37
Permanent service right, net 1,586 1,761
Property and equipment, net 23 16
Repayment Credit 36 —
Inventory and other assets 18 13
Total assets $ 1,980 $ 2,103
Repayment obligation 1,546 1,665
Revenue bonds 190 205
OM+R reconciliation provision 16 18
Deferred revenue 16 16
Other liabilities 57 59
Total liabilities 1,825 1,963
Net Assets:
Invested in capital assets, less than related debt (125) (91)
Restricted 96 92
Unrestricted 184 139
Total net assets 155 140
Total liabilities and net assets $ 1,980 $ 2,103
( I n $ M i l l i o n s )
The District’s total liabilities as of December 31, 2000 were approximately $1.8 billion. Current liabilities, including payables,
accrued interest, current principal obligations and the OM&R refund, were approximately $111 million. The largest compo-nent
of the District’s liabilities was the Federal repayment obligation in the amount of $1.55 billion. Other liability categories
include revenue bonds and deferred revenue.
Total liabilities will generally decrease each year as the repayment obligation and revenue bonds are paid off. Deferred rev-enue
consists of water delivery and capital charges collected in advance. Total fund net assets are generally expected to
increase because the annual Federal repayment obligation and bond principal payments exceed amortization of the perma-nent
service right. However, net assets will also fluctuate as a result of changes in

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Full Text

res lution
CAP
C E N T R A L
A R I Z O N A
P R O J E C T
A N N U A L
R E P O R T
H2000
C E N T R A L A R I Z O N A P R O J E C T
P.O. B O X 4 3 0 2 0
P H O E N I X, A R I Z O N A 8 5 0 8 0 - 3 0 2 0
( 6 2 3 ) - 8 6 9 - 2 3 3 3
w w w. c a p - a z . c o m
L E T T E R
C H A P T E R 1 0
C H A P T E R 1 1
C H A P T E R 1 2
F I N A N C I A L S
CONTENTS
P 01
P 02
P 06
P 14
P 19
T O O U R C U S T O M E R S A N D C O N S T I T U E N T S :
CAP C E N T R A L A R I Z O N A P R O J E C T A N N U A L R E P O R T 2K
For Central Arizona Project the year 2000 was a year of resolution.
Throughout the year CAP solved many critical issues — including reaching a financial
settlement with the federal government, reducing the property tax we collect and lowering
the cost of water to our customers – and still set record water deliveries of 1,540,312 acre-feet
of water.
We are proud of the fact that it was the first time CAP exceeded its annual 1.5 million
acre-foot allocation. We also are confident that meeting or exceeding our allocation will
become routine as long as the water is available.
Along with record-setting water deliveries CAP also settled the long standing financial
dispute with the federal government over our share of the reimbursable costs of building
the 336-mile-long system of aqueducts, pumping plants, tunnels and siphons.
As a result of the settlement, the Central Arizona Water Conservation District Board of
Directors lowered the property taxes we collect by 10 percent and reduced the rates that
our customers pay for water by approximately 10 percent.
We also made internal improvements. We instituted a reserve study to help determine
how much money we need to set aside each year to meet the required replacement costs
of all CAP equipment.
We also have continued to work on replacing the impellers at Mark Wilmer Pumping
Plant in Lake Havasu. This is the culmination of a 12-year effort to reduce the high noise
levels and vibration caused by the impellers. We replaced one in 1999, two in 2000 and
have three to go. The benefits to CAP are tremendous. The new impellers produce 23
percent more flow that can eventually enable us to pump more Colorado River water.
Perhaps one of the most important results of the settlement is that CAP is now able to
focus on an enterprise-wide resource planning (ERP) system. The new ERP system will
replace the existing computer programs used at CAP with one effective, integrated system
that will be used by all employees. When it comes “on-line” in 2001, it will allow CAP and
its people to work more effectively and efficiently.
CAP also continued to fulfill its water management responsibilities in 2000. We actively
participated in helping to develop the rules and regulations that will govern interstate water
banking between Arizona and Nevada. We also participated in developing an acceptable
plan for California to reduce its over reliance on Colorado River water down to its 4.4
million acre-foot allocation.
Inside our borders, CAP created another recharge site in Pima County by bringing the
Lower Santa Cruz River Recharge Project on-line and we continued to work on developing
the Agua Fria Recharge Project in Maricopa County.
So it was a full year, a busy year, and a year of resolution.
But it also was a year of resolve for CAP. We resolve to be the state’s premiere water
management agency. We resolve to hold true to CAP’s legacy that, as Arizona’s largest
renewable water supplier, we will continue to bring the water needed to help sustain our
quality of life in central and southern Arizona.
P 01
DAVID S.“SI D” WILSON J R. GENERAL MANAGER
or Central Arizona Project, 2000 was a
year of resolution.
Businesses and organizations face problems
and challenges that, at times, seem insur-mountable.
The resolution of those chal-lenges,
the way the problems are solved,
determines the organization’s legacy.
CAP’s legacy is to provide water certainty in
an arid state. CAP provides surety that today,
tomorrow and into the future the people of
Arizona will have a safe, dependable source
of water. CAP holds to its legacy by annually
delivering renewable water supplies from
the Colorado River.
Creating that legacy was a long, difficult
process. Transforming CAP from a mere
dream at the beginning of the century to
the reliable, dependable source of water it
is today meant bringing a myriad of problems
to resolution.
First, those who dared to envision the
dream of CAP had to decide how to move
the water from the river to the central and
southern parts of the state. Many solutions
were proposed, including one in the early
1900s that called for drilling a tunnel from the
bottom of the Grand Canyon south to the
vicinity of Camp Verde where the Colorado
River water would be put into the Verde River.
While that was never realized, there was, in
time, a resolution to the problem: build an
aqueduct from Lake Havasu and pump the
water east to Phoenix and on to Tucson.
Once the physical form and route were
decided, it was time to make the dream a
reality.
Colorado River water is shared by seven
states: Arizona, California, Colorado, Nevada,
New Mexico, Utah and Wyoming. The states
are divided into two Basins, Upper and Lower,
and each Basin is entitled to 7.5 million acre-feet
annually.
Arizona is part of the Lower Basin and
shares the total of 7.5 million acre-feet
annually with California and Nevada.
Arizona is entitled to 2.8 million acre-feet,
Nevada’s share is 300,000 acre-feet and
California gets 4.4 million acre-feet.
Politics has always played an important
role in western water issues and became a
major challenge when CAP was proposed.
California, which uses far more than its
4.4-million acre-foot allocation because
Arizona had no way to move the water to
C H A L L E N G E S
THE CAP AQUEDUCT STRETCHES FROM LAKE HAVASU THROUGH
THE PHOENIX AREA AND ON TO TUCSON.
CHAPTER
10
F A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K
P 02 P 03
P 05
LAKE PLEASANT IS CAP’S STORAGE RESERVOIR. FROM OCTOBER
THROUGH MARCH, CAP PUTS WATER INTO THE LAKE AND FROM
APRIL TO OCTOBER, WATER IS RELEASED FROM THE LAKE TO
MEET THE INCREASED CUSTOMER DEMANDS.
the central part of the state, recognized the
threat to its additional water and became a
major CAP opponent. To remove the opposi-tion,
CAP accepted junior rights to the water.
That means in times of drought, California is
entitled to take its full 4.4-million acre-foot
allotment before CAP takes any water.
With CAP’s creation came new challenges.
For example, the construction of Orme Dam,
which was to serve as a storage and flood
control reservoir for the Phoenix area, fell vic-tim
to environmental concerns. But, always
flexible, always innovative, CAP managers and
proponents reached a resolution by making
Lake Pleasant the regulatory storage feature
and the flood control functions were trans-ferred
to the already existing Roosevelt Dam.
Other problems arose only to be resolved
with foresight and good management. In
1993, construction of the CAP water supply
system was declared “substantially complete”
by the Bureau of Reclamation (BOR), which
built the 336-mile-long system. Though water
deliveries began on a limited basis in 1985,
water managers celebrated as CAP deliveries
were now available to all customers in Pima,
Pinal and Maricopa counties. Water was
flowing from the Colorado River across the
state, to the Valley of the Sun, through the
farmlands of Pinal County to Tucson.
Along with being “substantially complete,”
1993 also brought CAP one of its longest
running, most contentious problems, the
dispute with BOR over CAP’s share of reim-bursable
costs for building the system. After
years of negotiations and legal battles, there
was a resolution to this challenge in 2000.
Although 2000 was a year of resolution for
CAP, there is no end to CAP’s resolve to find
solutions to its many remaining challenges.
As it has in the past, CAP will work relent-lessly
to find solutions to help the state formu-late
and administer wise water policies, to par-ticipate
in resolving regional disputes and to
continue to provide Arizona with a safe, secure
source of water now and into the future.
CALIFORNIA
ORIGINALLY
OPPOSED THE
CONSTRUCTION
OF CAP BECAUSE
THE GOLDEN
STATE USES MORE
THAN ITS ANNUAL
4.4 MILLION
ACRE-FOOT
ALLOCATION.
P 04
Along with being “substantially complete,” 1993
also brought CAP one of its longest running,
most contentious problems.
P 07
vidence of CAP’s careful planning and thorough preparation throughout 1999
became apparent as the year 2000 began at midnight without a bang, a whimper or even a sigh.
It was more like a yawn as the calendars clicked over with the second hand of the clock to
begin the last year of the 20th Century and Y2K was a non-event. There were no computer failures,
no failures of any kind. The only Y2K problem was lack of sleep as CAP employees remained
on alert until the New Year’s morning sun began to shine upon the water in the aqueduct.
With the passing of all Y2K concerns, CAP’s Senior Management Team (SMT) turned its
attention to successfully resolving many of the other on-going problems and disputes. By
year’s end, the hard work and dedication made 2000 a year of resolutions as CAP:
A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K E
Began its Enterprise Resource
Planning project, an integrated
information system.
Accelerated its plans for
recharging water.
Participated in drafting regula-tions
for Interstate Water
Banking and began contract
negotiations with Nevada and
California.
Participated in key Colorado
River issues, including support-ing
the implementation of
California’s 4.4 plan.
1
2
3
4
5
6
7
Delivered in excess of 1.5 mil-lion
acre-feet of water for the
first time.
Reached a financial settlement
with the United States over the
reimbursable cost of the system.
Initiated a reserve study to
plan for future repairs and
needed replacements.
Began replacing impellers at
the Mark Wilmer Pumping
Plant at Lake Havasu.
resolutions
8
R E S O L U T I O N
CHAPTER
11
P 06
The agreement settled a dispute that began
in 1993 when the U.S. Bureau of Reclamation
(BOR) declared the CAP water supply system
to be substantially complete. Although there
were many points of disagreement, the major
one was that BOR claimed CAWCD’s share of
the construction cost was about $2.3 billion.
CAWCD claimed its repayment obligation was
limited by contract to $1.781 billion. CAWCD
utilizes revenues from capital charges on CAP
M&I (municipal and industrial) allocations,
power revenues, a property tax levied in the
three counties and interest on CAWCD
reserves to meet its repayment obligation.
Negotiations between the two parties
began in 1993. A tentative agreement was
reached in 1995 but it fell apart at the last
minute and CAWCD filed suit in U.S.
District court. The complex trial was divided
into several phases. Judge Earl Carroll ruled
after the first phase in November 1998 that
CAWCD owed no more than $1.781 billion.
Both sides continued to negotiate and, in
2000, managed to reach a resolution. The
negotiated agreement, which conditionally
ended the lawsuit, settled all the financial
disputes between the U.S. and CAWCD.
The settlement fixes CAWCD’s repayment
obligation at $1.65 billion and gives the
federal government an additional allotment
of 200,000 acre-feet of water per year. In
addition, CAWCD retains the exclusive right
to market excess water. Excess water is any
CAP water that is not taken by a customer
with a long-term contract entitlement.
The agreement has several conditions
subsequent, and one key condition states
that within three years the state and federal
government must settle Indian water rights
disputes with the Gila River Indian Community
and Tohono O’odham Nation. As part of
that settlement, about 200,000 acre-feet of
additional CAP water has been made avail-able
to the federal government to use to
settle the claims. If the conditions aren’t
satisfied, litigation could resume.
As a result of the settlement, the CAWCD
Board voted to reduce its property tax levy by
10 percent. The Board reduced the ad valorem
tax rate for CAWCD from 10 cents to 9 cents
per $100 of assessed valuation.
In addition, the Board reduced the capital
cost of water to its municipal and industrial
customers, which are cities and businesses, by
about 10 percent, or $5 per acre-foot of water.
That changed the capital cost component of
water from $48 per acre-foot to $43 per acre-foot
and meant a savings of $569,570 for
Phoenix, $740,000 for Tucson, $70,000 for
Glendale and $174,000 for Mesa.
The tax and water rate reduction was
possible because the settlement reduced
CAWCD’s cost to $1.65 billion from the
more than $2 billion claimed by the U.S.
Since CAWCD will be making a lower
annual payment for its share of the costs it
could afford a reduction in revenues.
Consequently, the Board was able to
reduce the tax and
water rate.
P 09
Since CAWCD will be making a lower annual payment
for its share of the costs without a reduction in revenues,
the Board was able to reduce the tax and water rate.
CAP’s first deliveries of Colorado River
water began with water reaching the
Harquahala Irrigation District in 1985 and
Phoenix the following year. CAP did not
exceed the 1-million acre-foot per year mark
for water deliveries until 1996.
Just four years later, in 2000, CAP deliv-ered
a record 1,540,312 acre-feet of water
for the year, an increase of 14 percent from
the previous high of 1,364,715 set in 1997.
One cubic foot of water is 7.48 gallons.
Dry weather was the primary reason for
the record deliveries. When Arizona has a
wet year, customers need less CAP water.
Conversely, when it is dry, water orders
increase.
Water year 2000 was the driest year on
record for the local Salt and Verde rivers,
managed by Salt River Project. The monsoon
season was late and short, lasting only 51
days (normal is 86) and bringing only 1.21
inches of rain (normal is 2.78 inches). By
comparison, in 1999 the monsoon lasted 84
days and brought 5.19 inches of rain.
The resulting dry conditions in the summer
of 2000 were so severe that the Salt River
Project, faced with the specter of completely
draining reservoirs such as Roosevelt to meet
its customer demands, was forced to purchase
more than 200,000 acre-feet of CAP water
to augment its supply for its customers.
As a result, CAP had a record year. In
addition to delivering a record 1,540,312
acre-feet of water, CAP also set records for
daily and monthly water deliveries.
The old record for the most acre-feet of
water delivered in one month — 197,945
in July of 1997 — was exceeded three
times in 2000 when CAP reached 205,161
acre-feet in June, then 227,902 acre-feet in
July and yet once more when 205,623
acre-feet were delivered in August.
CAP also surpassed the old record for
the peak daily water delivery rate of 3,931
cubic feet per second (cfs) when it reached
4,065 cfs on July 18.
After years of litigation and settlement
discussions, negotiators for the Central
Arizona Water Conservation District (CAWCD)
and the United States agreed in May to settle
a lawsuit over the reimbursable costs of
building the CAP system.
P 08
deliveries
settl ement
2000
C A P WAT E R D E L I V E R I E S
H I G H E S T R E C O R D E D D E L I V E R I E S
AGRICULTURE
725,595
RECHARGE
M & I
INDIAN
1,540,312 ACRE FEET
435,827
259,886
119,004
2000
L O W E R B A S I N WAT E R U S E
CALIFORNIA
5,308,883
ARIZONA
NEVADA
PRELIMINARY FIGURES
MEASURED IN ACRE FEET
2,639,415
332,610
NOTE: This tabulation is based on diversions including
underground pumping, less measured return flow
and less current AZ estimated unmeasured return
flow to the river.
enterprise-wide resource planning (ERP)
system to meet the needs of CAP for the
first decade of the 21st century.”
The ERP project has required innumerable
hours of research to determine the exact
needs of groups and departments and to find
one system that could share information. The
proposed system would eliminate work redun-dancy
and allow departments to share data by
using one common computer platform.
Although CAP initially sought a complete ERP
system from a single vendor, a “best of
breed” approach was adopted to more fully
meet business needs. CAP selected two sys-tems
that will optimize CAP’s current and
future business processes. The new integrated
system will replace the current financial sys-tem,
the Maintenance Management System
and manual processes in Human Resources.
ERP implementation began in October
2000 with building a project work plan,
designing a communications strategy and
assembling working teams for each functional
area to assist with implementation. The
expected “go live” date is September 2001.
While CAP focused on improving its
internal technological structure it also
moved in 2000 to position itself as Arizona’s
leading source of renewable water by
opening a new recharge site, increasing
Central Arizona Groundwater Replenishment
District (CAGRD) membership and by
participating in interstate water banking
negotiations.
CAP protects Arizona against future
water shortages by partnering with the
Arizona Water Banking Authority (AWBA)
and some customers to recharge excess
CAP water. Recharge, or storing water
underground for future use, is a kind of
water bank. The water, stored in the
underground aquifers, can be pumped
back out during drought and, in the inter-im,
the stored water replenishes already
depleted aquifers.
P 11
THE SYSTEM STARTS HERE: THE MARK WILMER PUMPING PLANT AT LAKE HAVASU
IS THE BEGINNING OF THE 336-MILE-LONG SYSTEM.
The settlement also has allowed CAP to focus on another mission ”to specify, procure, and implement an enter-prise-
wide resource planning (ERP) system to meet the needs of CAP for the first decade of the 21st century.”
recharge
The financial settlement gives CAP financial
certainty in a significant area of expense and
capital debt. As a precautionary measure, CAP
had maintained its financial reserves at optimum
levels in case litigation resumes. However, with
the settlement CAP is better able to project its
costs more reliably, which will also enhance
its ability to plan for the future.
One of the major steps CAP is taking is to
conduct a reserve study. The study will show
how much money is needed for future repairs
and replacements and other purposes.
For example, a piece of equipment may
have an expected life of 10 years and a pro-jected
replacement cost of $100,000. The
reserve study would then project that CAP
must either borrow the full replacement cost
or set aside, or save, $10,000 a year so that
in 10 years when the equipment wears out,
the funds will be available to replace it.
That study is being done on a system
wide scale and will take into account all of
CAP’s equipment and expected future
repairs. When complete, CAP will be able
to project how much money to collect and
set aside each year to meet the required
replacement costs.
One major replacement project that contin-ued
through 2000 is the replacement of the
six impellers at the Mark Wilmer Pumping
Plant near Lake Havasu City. Impellers are
used to push water 824 vertical feet up the
side of a mountain. The water is then released
into a seven mile long tunnel where it
starts its journey through the CAP system.
About 12 years ago CAP began reviewing
the high noise and vibration problem in the
plant caused by the six impellers. Together with
BOR, CAP undertook a study to review the sit-uation
and devised a replacement plan. The
first impeller was replaced in 1999. In 2000
two more impellers, each costing about
$350,000, were replaced. The fourth will be
replaced in 2001 and the last two in 2002. The
new impellers reduce the noise by a factor of
three and vibration well over 80 percent.
In addition to reducing the noise and
vibration, there has been an additional
bonus to having the new impellers: each
new unit at Mark Wilmer Pumping Plant
will produce 23 percent more flow than it
was originally designed to do and is more
efficient in energy use. The extra flow will
provide an incentive to CAP to upgrade
other plants and the canal to accept the
increased amount of water. Ultimately CAP
will be able to pump more than the 3,000
cfs it now pulls out of the river.
In addition to the reserve study and
impeller replacement, the settlement also has
allowed CAP to focus on another mission
“to specify, procure, and implement an
P 10
internal accomplishments
THE NEW IMPELLERS AT MARK WILMER PUMPING PLANT WILL
INCREASE THE FLOW OF WATER BY 23 PERCENT.
P 13
THE LOWER SANTA CRUZ RECHARGE PROJECT, DEDICATED ON NOVEMBER 2,
WILL RECHARGE ABOUT 30,000 ACRE-FEET OF WATER EACH YEAR.
In 2000, CAP added one more recharge
site to its portfolio when it dedicated the
Lower Santa Cruz Recharge Project (LSCRP)
on November 2. About 30,000 acre-feet of
Colorado River water will be recharged each
year at LSCRP. LSCRP—a joint effort by CAP,
Town of Marana, Pima County Flood Control
District and BKW Farms—joined the Avra
Valley Recharge Project (about 11,000 acre-feet
per year) and Pima Mine Road Recharge
Project (about 30,000 acre-feet per year),
which are all located in the Tucson area.
CAP initially concentrated on locating
recharge projects in Pima County because
Tucson’s groundwater table is falling dra-matically
as the city pumps more ground-water
out of the aquifer than is replaced.
This “groundwater mining” leads to problems
including subsidence, or cracks in the earth,
that can damage roads, homes and busi-nesses.
Recharge helps replenish the
groundwater table and prevent subsidence.
Maricopa County is the site of CAP’s next,
and largest, planned recharge facility. The
Agua Fria Recharge Project (AFRP) in Peoria
continued to move forward in 2000. AFRP
will be the first to include both in-stream
and basin recharge systems. It is scheduled
to begin operations in late 2001.
CAP also stepped up plans for more
recharge sites in the state and is studying
other sites in both eastern and western
Maricopa County. CAP launched a Western
Arizona Survey to find additional sites.
Another way CAP improves its service to
customers is through the Central Arizona
Groundwater Replenishment District (CAGRD).
CAGRD helps customers and communities
by providing a way for developers and water
providers to demonstrate compliance with
Arizona’s requirement of a 100-year assured
water supply using renewable water supplies
rather than relying on groundwater. CAGRD
enrolls members who cannot locate and
secure enough renewable water supplies on
their own to comply with the law. CAGRD
replenishes groundwater on behalf of its
members by recharging water to compen-sate
for the excess pumping. Members are
classified as Member Service Areas, such as
cities, town and private water companies,
and Member Lands, which primarily include
subdivisions located outside city water serv-ice
area boundaries.
In 1995 CAGRD began enrolling members
and, by year’s end, it had 4 Member Lands
with 184 homes and 3 Member Service
Areas, each representing a municipal water
provider’s service area. Since then, CAGRD
has grown to 324 Member Lands, consisting
of more than 70,000 homes and 15
Member Service Areas.
CAP has been a partner with the AWBA
since it was created by the Arizona
Legislature in 1996. The AWBA stores CAP
water underground for future use.
Part of AWBA’s funding comes from CAP
which annually dedicates part of its ad
valorem property tax to the Bank for the
purchase and storage of excess or unused
Colorado River water.
In 2000, CAP helped AWBA purchase and
store more than 200,000 acre-feet of water
that can be recovered in times of drought.
Through these efforts, and many others,
CAP’s leadership dedicated itself successfully
to bringing to a resolution many of the
issues facing CAP during the 20th Century.
P 12
cagrd
water banking
he dawn of the 21st Century means CAP
has moved from the resolution of past
issues to strive to become Arizona’s leading
water management organization.
CAP resolves to continue dealing with
internal changes while maintaining excel-lent
customer service. At the same time,
CAP is moving into a larger arena where it
is dealing with statewide and regional
issues.
As before, there seems to be no end to
the challenges needing resolution. But the
issues are critical and could affect Arizona’s
future water supply so CAP’s board and
management resolve to work diligently to
find answers.
Some of the major challenges CAP faces
in the new century are interstate water
banking, helping to implement the Interim
Operating Criteria for the Colorado River,
dealing with the movement to drain Lake
Powell, facing the Mexican Delta controversy,
finding a way to implement the Multi-
Species Conservation Program, and dealing
with deregulation of the electrical industry
in the desert Southwest.
Interstate water banking moved a step
closer to becoming a reality in 2000. In
conjunction with the Arizona Water
Banking Authority (AWBA) and the Arizona
Department of Water Resources (ADWR),
CAP contributed to efforts to work with
the U.S. to establish federal regulations to
allow interstate water banking so Arizona
could store water on behalf of Nevada and
California. By the end of 2000 all parties
had agreed to the new regulations.
In general terms, Nevada would pay all
the costs of having the AWBA and CAP
store Colorado River water in a recharge
facility in Arizona. When Nevada wanted to
reclaim the stored water it would take
some of Arizona’s allocation from the river
and Arizona would then pump that same
amount of water back out of the recharge
site, put it back in CAP’s aqueduct and
deliver it to customers.
A second milestone negotiated in 2000
were the Interim Operating Criteria. CAP
joined DWR and other Arizona water users
in negotiations to develop criteria that
would allow California to gradually reduce
its use of Colorado River water to its 4.4-
million acre-foot allotment. California
currently uses an average of 5.2 million
acre-feet of Colorado River water each
year. The plan calls for California to receive
a guarantee of at least 4.8 million acre-feet
a year for 15 years while it works toward
reaching its 4.4 goal.
A N N U A L R E P O R T C E N T R A L A R I Z O N A P R O J E C T CAP 2K T
P 15
THE COLORADO RIVER PROVIDES DRINKING WATER
FOR MORE THAN 20 MILLION PEOPLE EACH DAY.
R E S O L V E
CHAPTER
12
P 14
left unresolved. Without Glen Canyon Dam
regulating the river, the seven states would
be drawn into a series of legal disputes.
Draining Lake Powell would also have sig-nificant
negative effects on CAP’s main source
of electricity, the Navajo Generating Station.
Navajo gets its water supply from Lake
Powell. If the lake were drained Navajo
would need to find another water source or
develop a new, more expensive pumping site.
Overall, draining Lake Powell would signifi-cantly
impact the reliability of CAP’s long term
Colorado River water supply. Droughts on
the Colorado River would cause more severe
depletions of Lake Mead and draining Mead
would eventually accelerate and increase
water shortages to CAP and to Arizona.
Environmentalists claim draining Lake
Powell would not only restore Glen Canyon’s
natural beauty, but it would also provide
more water for the Mexican Delta. In most
years very little river water reaches the Delta,
where the Colorado River empties into the
sea. The Delta is an environmentally sensitive
area providing habitat to a variety of species.
Broad efforts have been underway for some
time to determine the needs of the Delta and
to propose solutions. The International
Boundary and Water Commission (IBWC) has
been working to establish a framework under
which Mexico and the United States might
cooperate in developing studies and recom-mendations
for the area.
While it may seem easy to keep enough
water in the river to restore the Delta habitat,
there are many problems. Currently, BOR
does not have the legal right to release
Colorado River water except for river regula-tion,
improvement of navigation and flood
control; for irrigation and domestic uses;
and for power. There is no law in place
that would permit the release of water for
environmental purposes.
In addition, if the water were released to
Mexico for the Delta, there currently is no
guarantee that such excess flows would ever
get there. Mexico uses all of its Colorado
River water and it’s likely the excess would be
diverted for agricultural and municipal use.
Yet another environmental issue facing
CAP is the Lower Colorado River Multi-
Species Conservation Program (MSCP).
Through this program three states, along
with numerous stakeholders including
Indian tribes, wildlife agencies and water
and hydroelectric power management
agencies, are working together to achieve
long-term compliance with state and federal
endangered species laws.
This program is the first alliance of its kind
to work toward protecting multiple species
of threatened or endangered fish and wildlife
P 17
Draining Lake Powell would significantly impact the reliability of
CAP’s long term Colorado River water supply.
IF EXCESS COLORADO RIVER WATER WERE
RELEASED TO MEXICO FOR THE DELTA,
THERE CURRENTLY IS NO GUARANTEE THAT THE
WATER WOULD NOT BE DIVERTED FOR AGRICULTURAL
AND MUNICIPAL USE.
In simple terms, Arizona, Colorado,
Nevada, New Mexico, Utah and Wyoming
have agreed to guarantee California will
receive 400,000 acre-feet more than its
allotment for 15 years. Projections show
there should be a natural surplus of river
water available to accommodate California
in most years. Surplus is declared on the
river whenever the Colorado River storage
system is relatively full and the projected
runoff is more than can be safely stored.
However, the agreement states that in
any year during that 15-year span, even if
there is not a real or natural surplus, some
water stored in Lake Mead will be released
for California’s benefit. The loss of stored
water is expected to be recaptured over
time in future surplus years.
CAP was concerned that if water is
released from Lake Mead in consecutive
years followed by a drought, a shortage
would be declared on the river and CAP, as
the junior right holder to Colorado River
water, would be the first to lose its water.
The resolution to the problem: to protect
CAP, California has agreed to take the first
1 million acre-feet of shortage if the extra
water released for California during the 15
year span contributed to the shortage.
In December, outgoing Interior Secretary
Bruce Babbitt praised the seven states for
reaching agreement on the Interim
Operating Criteria and promised it would
be approved before President Clinton left
office in January of 2001.
In addition to dealing with California,
CAP also faces several regional environ-mental
challenges as it seeks to manage
Arizona’s water supply.
The first of these is the movement to
remove Glen Canyon Dam and drain Lake
Powell. This movement, initiated by the
Sierra Club in 1996, would threaten the
reliability of CAP’s water supply.
When full, Lake Powell stores more than
25 million acre-feet of water. Being such a
formidable storage facility, Lake Powell helps
stabilize the inconsistencies of the Colorado
River. It allows the Upper Basin States to
develop and use their full Colorado River
apportionment while at the same time it
assists them in meeting their long-term water
supply commitments to the Lower Basin.
The importance of safeguarding the
agreement between the upper and lower
basins should not be underestimated.
When Glen Canyon Dam was authorized in
1956 many water management issues were
P 16
LAKE
POWELL
STORES
MORE THAN
25 MILLION
ACRE-FEET
OF WATER.
PHOTO BY PETER ENSENBERGER
and their habitat. Its objectives are to
accommodate current water diversions and
power production and optimize future water
and power development opportunities, while
also conserving the habitat and working
toward the recovery of endangered species
and reducing the likelihood of additional
threatened and endangered species listings.
The program covers the mainstem of the
lower Colorado River from below Glen
Canyon Dam to the International Boundary
with Mexico, including the 100-year flood
plain and full-pool reservoir elevations. It
will include more than 100 species of mam-mals,
birds, fish, amphibians, reptiles, inver-tebrates
and plants as well as their associated
habitats, ranging from aquatic, wetland,
and riparian habitats to upland areas.
The MSCP began about five years ago,
and it was estimated that program devel-opment
would take about three to four
years and cost about $4.5 million.
Participants are now about five years into
program development, and it is estimated
that an additional two years and $2.2 mil-lion
more will be needed to complete it, for
a total cost of $6.7 million.
Once program development is complete
the MSCP will be implemented over a 50
year period and will accommodate current
water diversions and power production and
optimize opportunities for future water and
power development, while at the same time
addressing the environmental needs as out-lined
by federal and non-federal agencies.
The move toward deregulating the elec-trical
market began in earnest in 2000. In
California, San Diego was among the first
cities to experience increased power costs
and rolling blackouts during the summer.
Experts predicted California would experi-ence
more severe power shortages due to
lack of generating capacity.
CAP did not experience any cost increases
for power nor have any interruption of
service. About 25 percent of the Navajo
Generating Station is dedicated to CAP,
along with some Hoover B and C power,
which was enough to forestall any prob-lems.
Since CAP’s transmission capacity
contracts do not expire for more than a
decade, the problems looming in the future
caused by deregulation should have little, if
any, negative impact on CAP.
CAP’s leadership has resolved to deal
with and help find solutions for these and
many other challenges as it moves into the
new century fully determined to secure and
protect Arizona’s water supply now and for
generations to come.
P 18
CAP IS PARTICIPATING IN A PROGRAM
THAT IS WORKING TOWARD THE RECOVERY
OF ENDANGERED SPECIES.
Central Arizona Water Conservation District
D E C E M B E R 3 1, 2 0 0 0
p 19
STATEMENTS OF NET ASSETS
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS
P 20
P 21
P 23
P 24
P 25
C O N T E N T S
REPORT OF INDEPENDENT AUDITORS
A U D I T E D F I N A N C I A L S TAT E M E N T S
P 48
O T H E R F I N A N C I A L I N F O R M AT I O N
MANAGEMENT’S DISCUSSION AND ANALYSIS
S TAT E M E N T S O F N E T A S S E T S
D E C E M B E R 3 1
2000 1999
A S S E T S
Current assets:
Cash $ 38 $ 2,639
Investment in Arizona Local Government Investment Pools 5,896 7,277
Total cash and cash equivalents 5,934 9,916
Receivables:
Accrued interest receivable on unrestricted investments 4,532 1,589
Due from water customers, less allowance for doubtful accounts
of $1,875 and $2,252 at December 31, 2000 and 1999, respectively 1,866 1,976
Other, less allowance for doubtful accounts of $-0- and $4,709
at December 31, 2000 and 1999 respectively 669 548
Repayment Credit (Note 3) 35,584 —
Materials and supplies inventory 2,939 2,727
Water Inventory 12,647 6,481
Other 918 1,735
Total current assets 65,089 24,972
Noncurrent assets:
Funds held by federal government 26,679 27,789
Investment in State Treasurer CAP investment pool (Note 6) 172,962 173,477
Restricted assets (Note 7) 98,740 92,626
Advances to federal government (Note 8) 5,930 5,022
Property and equipment, less accumulated depreciation of $14,966
and $12,607 at December 31, 2000 and 1999, respectively 23,192 16,258
Permanent service right, less accumulated amortization of $208,851
and $178,313 at December 31, 2000 and 1999, respectively 1,585,846 1,761,190
Bond issuance costs, net of accumulated amortization of $2,726
and $2,480 at December 31, 2000 and 1999, respectively 1,252 1,512
Total noncurrent assets 1,914,601 2,077,874
Total assets $ 1,979,690 $ 2,102,846
See accompanying notes.
( I n t h o u s a n d s )
R E P O RT O F I N D E P E N D E N T A U D I T O R S
T h e B o a r d o f D i r e c t o r s
C e n t r a l A r i z o n a W a t e r C o n s e r v a t i o n D i s t r i c t
We have audited the accompanying statements of net assets of
Central Arizona Water Conservation District as of December 31,
2000 and 1999, and the related statements of revenues, expens-es
and changes in net assets, and cash flows for the years then
ended. These financial statements are the responsibility of the
District's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assur-ance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evi-dence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting prin-ciples
used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
The management’s discussion and analysis beginning on page 48
is not a required part of the basis financial statements but is sup-plementary
information required by the Governmental Accounting
Standards Board. We have applied certain limited procedures,
which consisted principally of inquiries of management regarding
the methods of measurement and presentation of the supplemen-tary
information. However, we did not audit the information
and express no opinion on it.
In our opinion, the financial statements referred to above pres-ent
fairly, in all material respects, the financial position of
Central Arizona Water Conservation District at December 31,
2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Mar ch 16 , 2001
p 20 p 21
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
Y E A R E N D E D D E C E M B E R 3 1
2000 1999
O P E R AT I N G R E V E N U E S
Water operations and maintenance charges $ 60,516 $ 54,924
Water service capital charges 28,283 28,373
Power revenues (Note 5) 51,553 52,990
Reimbursements and other operating revenues 3,729 1,446
Total operating revenues 144,061 137,733
O P E R AT I N G E X P E N S E S
Salaries and related costs 27,933 26,493
Pumping power 44,564 39,989
Power transmission 1,922 2,381
Hoover capacity charges 3,072 3,288
Amortization of permanent service right 30,538 32,835
Depreciation 3,393 2,725
Provision for OM&R reconciliation (Note 14) — 2,000
Provision for doubtful accounts 28 419
Other operating expenses 11,974 10,252
Total operating expenses 123,424 120,382
Operating income before unusual expense item 20,637 17,351
Unusual expense item - provision for OM&R reconciliation (Note 14) — (16,000)
Operating income after unusual expense item 20,637 1,351
NONOPERAT I N G R E V E N U E S ( E X P E N S E S )
Property taxes, less assignment to Arizona Water Banking Authority
of $9,967 and $9,125 in 2000 and 1999, respectively 23,629 22,754
Interest income and other nonoperating revenues 19,526 13,055
Interest income reserved for Ak-Chin fund 336 260
Interest income and other nonoperating revenues reserved
for State Demonstration Project 1,147 1,029
Interest expense and other nonoperating expenses (49,895) (54,838)
Total nonoperating revenues (expenses) (5,257) (17,740)
Change in net assets 15,380 (16,389)
Net assets at beginning of year 139,650 156,039
Net assets at end of year $ 155,030 $ 139,650
See accompanying notes.
( I n t h o u s a n d s )
S TAT E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S I N N E T A S S E T S
D E C E M B E R 3 1
2000 1999
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 12,901 $ 13,897
Accrued payroll, payroll taxes and other accrued expenses 4,479 2,100
Current liabilities payable from restricted assets, advances to federal
government, and other noncurrent assets:
Accrued interest payable 38,580 42,758
Repayment obligation, due within one year (Note 3) 20,272 17,605
Contract revenue bonds, due within one year (Note 10) 18,050 17,250
OM&R reconciliation obligations (Note 14) 16,240 —
Total current liabilities 110,522 93,610
Noncurrent liabilities:
Repayment obligation, due after one year (Note 3) 1,526,013 1,647,838
Contract revenue bonds, due after one year, net of unamortized discounts
of $16,015 and $18,386 at December 31, 2000 and 1999, respectively (Note 10) 171,768 187,447
OM&R reconciliation obligation (Note 14) — 18,000
Provision for retiree health insurance 313 —
Water operations and capital charges deferred revenue 16,044 16,301
Total noncurrent liabilities 1,714,138 1,869,586
Total liabilities 1,824,660 1,963,196
N E T A S S E T S
Investment in capital assets, less related debt (125,812) (91,180)
Restricted 96,465 91,706
Unrestricted 184,377 139,124
Total net assets 155,030 139,650
Total liabilities and net assets $ 1,979,690 $ 2,102,846
See accompanying notes.
S TAT E M E N T S O F N E T A S S E T S C O N T I N U E D
( I n t h o u s a n d s )
p 22 p 23
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
O R G A N I Z AT I O N A N D R E P O R T I N G E N T I T Y
The Central Arizona Water Conservation District (District) is a multicounty water conservation district organized within the
state of Arizona encompassing Maricopa, Pima, and Pinal counties. The District's popularly elected Board of Directors serves
as its governing body. Under the requirements of Governmental Accounting Standards Board (GASB) Statement No. 14, The
Financial Reporting Entity, the District is a primary government, which includes an ancillary project, the Central Arizona
Groundwater Replenishment District (CAGRD). The District was authorized in 1971 by the Arizona State Legislature for the
primary purpose of creating a single entity to enter into an agreement (Note 3) with the United States Department of the
Interior, Bureau of Reclamation (Reclamation), for repayment of the reimbursable cost of the Central Arizona Project (CAP).
The District is further empowered to serve as the operating agent of the CAP.
In 1993, the State legislature gave the District additional authority to provide replenishment services within the District’s
three-county service area. This authority is commonly referred to as the Central Arizona Groundwater Replenishment District.
The CAGRD began enrolling members in 1995, and as of December 31, 2000, there were 324 member lands (individual sub-divisions)
and 15 member service areas. The CAGRD is responsible for using renewable water supplies to replenish
(or recharge) excess groundwater used by its members. All costs of the CAGRD are to be paid by its members through
assessments based on replenishment services provided. Through 2000, the CAGRD’s total net replenishment obligation was
approximately 3,456 acre-feet.
The CAP is a multi-purpose water resource project authorized by the Congress of the United States in 1968 by the Colorado
River Basin Project Act and was constructed by Reclamation. The CAP is intended to deliver an average of approximately 1.5
million acre-feet of Arizona's annual share of Colorado River water to central and southern Arizona,
which will partially replace existing groundwater uses and supplement surface water supplies. It also provides flood control,
power, recreation, and fish and wildlife benefits. The major authorized project features include (1) a 335-mile aqueduct system
(water supply system), (2) New Waddell and Modified Roosevelt Dams (regulatory storage facilities), (3) replacement features
or programs for Cliff Dam (Cliff Dam Alternative), (4) Hooker Dam or suitable alternative (Hooker Dam Alternative), (5)
Buttes Dam, (6) Navajo Power Project (Navajo), and (7) Indian and non-Indian water distribution systems.
The District has the authority to levy ad valorem taxes against all taxable property within its boundaries. The first ad valorem
tax, which may not exceed 10 cents per $100 of assessed valuation, is for the District’s operations and repayment of the
construction cost repayment obligation of the CAP (Note 3). The second ad valorem tax, which may not exceed 4 cents per
$100 of assessed valuation, is for water storage to the extent that it is not required for the District’s operations or repayment
of the construction cost repayment obligation of the project. Through December 1995, this tax was used to fund water
recharge activities under State Demonstration Projects and was levied only in Maricopa and Pima Counties (see Note 7).
In April 1996, the Arizona State Legislature amended the law relating to this second ad valorem tax (see Note 7). The ad
valorem tax for operations and repayment was levied at 10 cents per $100 of assessed valuation for the tax year ending June
30, 2000, and 9 cents per $100 of assessed valuation for the tax year ending June 30, 2001. The ad valorem tax for water
storage was levied at 4 cents per $100 of assessed valuation in 1999 and 2000 and has been transferred to the Arizona Water
Banking Authority (see Note 7). Property taxes are collected on behalf of the District by the respective counties.
1.
N O T E S T O F I N A N C I A L S TAT E M E N T S
D E C E M B E R 3 1 , 2 0 0 0
Y E A R E N D E D D E C E M B E R 3 1
2000 1999
C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S
Cash received from customers $ 90,429 $ 83,250
Cash received from power sales 54,090 52,956
Cash paid to employees (25,554) (26,835)
Cash paid to suppliers (69,180) (57,268)
Net cash provided by operating activities 49,785 52,103
C A S H F L O W S F R O M N O N C A P I TA L F I N A N C I N G A C T I V I T I E S
Cash received from property taxes, net 23,629 22,754
Net cash provided by noncapital financing activities 23,629 22,754
C A S H F L O W S F R O M C A P I TA L A N D R E L AT E D F I N A N C I N G A C T I V I T I E S
Payments on contract revenue bonds, including interest and other expenses (27,681) (27,672)
Payments on repayment obligation, including interest (58,616) (68,032)
Additions to property and equipment (10,327) (6,075)
Increase in Repayment Credit (35,584) —
Decrease in Repayment Obligation (101,553) —
Decrease in advances to federal government (908) (2,873)
Decrease in permanent service right 144,806 —
Net cash used in capital and related financing activities (89,863) (104,652)
C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S
(Increase) in restricted assets (6,114) (2,430)
Decrease in investment in state pool 515 12,943
Interest on investments 18,066 13,658
Net cash provided by investing activities 12,467 24,171
Net (decrease) in cash and cash equivalents (3,982) (5,624)
Cash and cash equivalents at beginning of year 9,916 15,540
Cash and cash equivalents at end of year $ 5,934 $ 9,916
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net operating income (loss) $ 20,637 $ 1,351
Adjustments to reconcile operating loss to net cash used in operating activities:
Amortization of permanent service right 30,538 32,835
Depreciation 3,393 2,725
Provision for doubtful accounts 28 420
Changes in operating assets and liabilities:
Due from water customers 82 (1,379)
Due from other receivables (121) 65
Inventory (212) 70
Lake Pleasant (6,166) (2,573)
Other 817 (884)
Funds held by federal government, net 1,110 1,413
Accounts payable (996) 583
Increase (decrease) in deferred payment (257) (181)
OM&R reconciliation obligation (1,760) 18,000
Accrued payroll, payroll taxes and other accrued expenses 2,379 (342)
Accrued pension 313 —
Net cash provided by operating activities $ 49,785 $ 52,103
See accompanying notes.
S TAT E M E N T S O F C A S H F L O W S
( I n t h o u s a n d s )
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SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
Property and Equipment
Property and equipment are stated at cost. Assets are depreciated on the straight-line method over the estimated useful lives
of the assets ranging from five to forty years.
Permanent Service Right
The District's interest in the CAP represents a permanent service right pursuant to the Master Repayment Agreement and the
settlement Stipulation (Note 3). The permanent service right represents the District's right to use the CAP water delivery sys-tem
for the purpose of fulfilling its responsibility of delivering water as provided in the Master Repayment Agreement.
The District has used the repayment obligation specified in the settlement Stipulation, plus certain advances to the federal
government and other adjustments, in recording the permanent service right. The cost of the permanent service right may
be adjusted in the future as a result of determinations to be made as a consequence of the settlement Stipulation
(see Notes 3 and 11).
Although the District's interest in the CAP is reflected in the accompanying balance sheets, the United States retains a
paramount right or claim in the CAP arising from the original construction and operation of the CAP as a Federal
Reclamation Project. The District's right to the possession and use of, and to all revenues produced by, the CAP is evidenced
by the Master Repayment Agreement, various laws, and other agreements with the United States. Legal title to the CAP
will remain with the United States until otherwise provided by Congress.
The District amortizes the permanent service right on the straight-line method over the estimated useful lives of the major
components of the CAP, generally 100 years for the aqueduct, 30 years for the Navajo power plant and related transmission
facilities, 50 years for buildings and structures, and 20 years for the pumping plant equipment.
The cost of periodic maintenance is charged to operations expense and the cost of major replacements is capitalized.
Bond Issuance Costs and Discounts
Bond issuance costs and discounts are deferred and amortized over the term of the related bonds on the interest method.
Bond discounts are presented as a reduction of the face amount of bonds payable whereas issuance costs are recorded as
deferred charges.
Revenue Recognition
The District records revenue from the sale of water, the sale of power, the collection of property taxes and the provision of
certain contract services to other outside entities. Water rates consist of a water service capital charge and an operations,
maintenance and replacement (OM&R) charge (see Note 4). Generally, OM&R charges are determined by the Board of
Directors after giving consideration to the amount of OM&R costs to be paid by the various subcontractors and through
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Basis of Accounting
The accounting policies of the District conform to generally accepted accounting principles as applicable to an enterprise
fund of a governmental unit. Accordingly, the accrual basis of accounting is utilized, whereby revenues are recorded when
they are earned, and expenses are recorded when the liability is incurred. The District has elected, in accordance with GASB
Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Activities
That Use Proprietary Fund Accounting, and GASB Statement No. 29, The Use of Not-for-Profit Accounting and Financial
Reporting Principles by Governmental Entities, not to apply Financial Accounting Standards Board Statements and
Interpretations issued after November 30, 1989. The District has elected to implement GASB Statement No. 34, Basic
Financial Statements—and Management’s Discussion and Analysis for State and Local Government, as well as GASB
Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, in 2000. The District's books and
records include separate accounts and projects that are described as "funds": a general fund, Ak-Chin fund, State
Demonstration Project fund, CAGRD project, and debt service funds. These "funds" have been combined in the accompanying
financial statements. All material interfund transactions have been eliminated.
Use of Estimates
The preparation of financial statements that conform to generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. See also Note 3 and 11 regarding the District’s repayment obligation and the
Settlement Stipulation.
Cash and Unrestricted Investments
All funds are to be invested in obligations issued or guaranteed by the United States or any of its agencies, collateralized
repurchase agreements, obligations of the state and local governments, prime quality commercial paper, and other instruments
as set forth in the District's enabling legislation.
Investments are managed by the State Treasurer and maintained in investment pools (the CAP Pool, the state of Arizona
Local Government Investment Pool and the state of Arizona Pool 3). The Local Government Investment Pool (LGIP) consists
of investments with maturities of less than one year and therefore are recorded at cost. The CAP Pool and Pool 3 are
recorded at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments
and for External Investment Pools (see Note 6).
Inventory
Inventory is comprised of maintenance, office, auto, and safety supplies and is carried at the lower of cost (first-in, first-out)
or market.
2.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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M A S T E R R E PAY M E N T A G R E E M E N T
The Agreement
Reclamation and the District entered into a contract for delivery of water and repayment of costs of the CAP in December
1972 (1972 Master Repayment Agreement). The 1972 Master Repayment Agreement implemented the Colorado River Basin
Project Act of 1968 (Project Act). Among other things, Reclamation agreed in the 1972 Master Repayment Agreement to
construct the CAP and the District agreed to repay (1) the reimbursable construction costs of the CAP properly allocated to
the municipal and industrial (M&I) and non-Indian agricultural water supply and the power functions of the CAP, (2) OM&R
costs during construction properly allocated to the non-Indian water supply and power functions, and (3) interest during
construction on costs allocated to the M&I water and the power functions. An amended contract (1988 Master Repayment
Agreement) was executed in December 1988, which superseded and replaced the 1972 Master Repayment Agreement. (The
1972 Master Repayment Agreement as superseded and replaced by the 1988 Master Repayment Agreement is referred to
herein as the Master Repayment Agreement.)
Commencement of Repayment
The Master Repayment Agreement provides that the Secretary of the Interior (Secretary) shall issue notice of completion of
each CAP construction stage. Reclamation notified the District that the water supply system, the first construction stage, was
substantially complete on October 1, 1993. This notification initiated repayment by the District for the water supply system.
Reclamation notified the District that the regulatory storage facilities stage, consisting of New Waddell and Modified
Roosevelt Dams, was substantially complete on September 30, 1996. This notification initiated repayment by the District
for the regulatory storage facilities stage.
The Master Repayment Agreement requires the District to make annual payments to the United States on the repayment
obligation related to the completed construction stages. These payments are required to be made over a 50-year period and
are based on paying a percentage of the remaining outstanding repayment obligation, plus interest, with each construction
stage having a separate 50-year repayment period as follows: contract years 1-7: 1 percent; 8-14: 1.3 percent; 15-21: 1.6
percent; 22-28: 2 percent; 29-35: 2.6 percent; and 36-50: 2.7 percent.
Repayment Litigation and Stipulation
In July 1995, the District filed a lawsuit against the United States seeking a judicial determination of the District’s repayment
obligation. The United States also filed a lawsuit against the District. The two lawsuits were consolidated into a single action
in the Federal District Court (the Court) in Phoenix, Arizona (the Repayment Litigation). In May 2000, the District and the
United States entered into a Stipulation Regarding a Stay of Litigation, Resolution of Issues During the Stay and for Ultimate
Judgment upon the Satisfaction of Conditions (the Stipulation) to resolve all the issues in the Repayment Litigation. The
Stipulation was approved by the Court on May 9, 2000.
The ultimate effectiveness of the Stipulation is subject to a number of conditions, including settlement of certain Indian water
rights claims, and will require certain State of Arizona and federal legislation. If the conditions are not met within three years
and the parties do not agree separately to amend the conditions or extend the deadline, the Stipulation will terminate
3.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
SUMMARY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D
property taxes. Water is delivered to subcontractors and other customers based on delivery requests. Revenue from OM&R
charges is recognized as it is earned and revenue from water service capital charges is recognized ratably over the period of
the billing. Generally, OM&R charges for scheduled water deliveries are due in advance.
Revenues from contract services and the sale of power are recorded when earned.
Property taxes are recorded as revenue when received. Tax equivalency charges are recorded when received if there is no
obligation to deliver any services or provision for refund.
Statement of Cash Flows
For the purpose of the statement of cash flows, investments in the state of Arizona Local Government Investment Pools are
treated as cash equivalents due to their liquidity.
Water Inventory Adjustment
In 1998, the District adopted a new accounting policy for recording changes in the water inventory stored in Lake Pleasant.
The water inventory adjustment is a means to adjust the pumping energy component of water service charges to recognize
that the cost of power used to pump water into Lake Pleasant should be recovered, through OM&R charges, in the year the
water is delivered to customers, not the year in which it is pumped into Lake Pleasant. Based on a typical operating year,
which involves pumping water into Lake Pleasant between late October and April and releasing water from Lake Pleasant
in June through early October, the expected amount of storage at year end is approximately 300,000 to 325,000 acre-feet.
Since the District’s share of Lake Pleasant storage at December 31, 1997 was approximately 324,000 acre-feet, this level was
chosen as a base level storage from which future deviations would be measured. The value of the water storage inventory
below 324,000 acre-feet was included in the permanent service right.
In 2000, the District further modified this policy to reclassify the water storage inventory below 324,000 acre-feet from the
permanent service right to the water inventory adjustment. The amount of this adjustment was $9,790,000. The water inventory
adjustment represents the weighted average energy cost associated with the change in storage level in Lake Pleasant over the
calendar year. The District’s share of Lake Pleasant storage as of December 31, 2000, was 359,000 acre-feet.
Application of GASB Statement No. 31
GASB Statement No. 31 changed the current practice of reporting most investments held by governmental entities from a cost
basis to a fair value basis. At December 31, 1999, fair value exceeded cost by $986,000. At December 31, 2000, cost exceeded
fair value by $317,000. These adjustments are included in interest revenue in the statements of operations and net assets.
Reclassification
Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.
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M A S T E R R E PAYM E N T A G R E E M E N T C O N T I N U E D
In the Repayment Litigation, the District disputed Reclamation’s cost allocation. If the litigation resumes, the portion of the
District’s repayment obligation that bears interest would be subject to periodic revision by Reclamation based on its cost allo-cations.
Construction Deficiencies
When Reclamation issued notices of completion for the water supply system and regulatory storage facilities stages of the
CAP, a number of construction deficiencies remained. The Stipulation provides that the construction deficiencies will be
corrected without increasing the District’s repayment obligation. The Stipulation identifies those deficiencies that will be
corrected by the United States, at no additional cost to the District, and those that the District will correct itself and for
which it will receive a corresponding credit against its annual repayment obligation. The Stipulation also provides a repayment
credit for the District’s past expenditures to correct construction deficiencies.
In the Repayment Litigation, the District had sought to hold the United States responsible for costs incurred by the District in
correcting CAP construction deficiencies, which totaled $41,884,000 as of December 31, 2000. The United States had
argued that it had no obligation to fund the correction of CAP construction deficiencies because of the dispute regarding
the Repayment Ceiling and the fact that Reclamation had determined that the ceiling had been exceeded. The United States
had also disclaimed any responsibility for costs incurred by the District in correcting those deficiencies.
Application of Development Fund Revenues
The Stipulation provides that all miscellaneous revenues and net power revenues accumulating in the Lower Colorado River
Basin Development Fund (Development Fund) of the United States Treasury in each year will be credited annually against the
amount due from the District on its repayment obligation.
In the Repayment Litigation, the United States had asserted that it was not obligated to apply Development Fund revenues
toward the District’s repayment obligation, but could use those revenues to pay Reclamation’s operating costs.
Payments Due on the District’s Repayment Obligation
The Stipulation establishes a new repayment schedule based on the revised $1.65 billion repayment obligation and reconciles the
District’s past payments, Development Fund credits and construction deficiency credits against that revised payment schedule.
The annual payments due from the District and the credits available from Development Fund revenues, construction deficiency
corrections and other sources were among the issues in dispute in the Repayment Litigation. As of January 15, 2000, there was
a difference of $118,903,000 between the amounts billed by the United States and the amount acknowledged by
Reclamation to have been paid by the District on the District’s repayment obligation. At that time, Reclamation was assessing
penalties of approximately $1,189,000 per month against the District on the amounts in dispute.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
M A S T E R R E PAYM E N T A G R E E M E N T C O N T I N U E D
and litigation will resume. Either party may petition the Court to terminate the Stipulation and resume litigation before the
deadline if it believes the conditions cannot be met by that date. Unless and until the Stipulation is terminated, it is effective
as between the United States and the District. It is not possible to predict whether the Stipulation will become finally effective
or if the litigation will resume or the outcome of any such litigation. If litigation resumes and results in an adverse determination
on any of the major issues raised, it could have a material adverse effect on the financial operations of the District. The major
issues addressed in the Stipulation are described below.
Repayment Obligation
The Stipulation establishes the District’s repayment obligation for the CAP water supply system and the regulatory storage
facilities at $1.65 billion, premised on a total allocation of 665,224 acre-feet of CAP water for federal use. Currently,
453,224 acre-feet of CAP water is allocated for federal use; one condition of the Stipulation is that additional CAP water be
made available for federal use. The Stipulation provides that the $1.65 billion repayment obligation is subject to adjustment
if the total amount of CAP water ultimately made available for Federal use is not 665,224 acre-feet.
In the Repayment Litigation, Reclamation had taken the position that the repayment ceiling in the Master Repayment
Agreement on the District's repayment obligation for the water supply system and the regulatory storage facilities
(Repayment Ceiling) was $2.0 billion. The District had argued that the Repayment Ceiling on these facilities was not more
than $1.781 billion. Notwithstanding the Repayment Ceiling, Reclamation contended that the District's repayment obligation
for these facilities was $2.183 billion, premised on a total allocation of 453,224 acre-feet of CAP water for federal use.
In November 1998, the Court issued an interlocutory order to the effect that the District’s repayment obligation for the
water supply system and regulatory storage facilities is limited to $1.781 billion. However, the United States appealed the
Court order. After the Stipulation was entered, the appeal was voluntarily dismissed without prejudice. The Stipulation
preserves the United States’ appeal rights if the Repayment Litigation resumes.
Interest on Repayment Obligation
The Stipulation provides that 73 percent of the District’s $1.65 billion repayment obligation will bear interest at the rate
established in the Master Repayment Agreement of 3.342 percent per annum, and 27 percent of the repayment obligation
will be non-interest bearing. The Stipulation fixes these percentages for the duration of the repayment period.
Before the Stipulation, the Master Repayment Agreement provided that Reclamation would perform a cost allocation that
would then determine both the amount of the District’s repayment obligation and the portion of that obligation that would
bear interest. Costs allocated to the non-Indian agricultural water supply function were to be repaid by the District without
interest, while costs allocated to the M&I water supply and the power functions were to be repaid with interest at 3.342 percent
per annum. The Master Repayment Agreement also provided that Reclamation would periodically revise its cost allocation
to reflect actual water deliveries, which could have the effect of altering the percentage of the District’s repayment obligation
that bears interest.
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O P E R AT I O N S
Operations and Maintenance Agreement
Reclamation has transferred responsibility for operation and maintenance of completed CAP features to the District.
The District performs these responsibilities under the Master Repayment Agreement, a 1987 agreement with Reclamation
for the operation and maintenance of the facilities (the OM&R Transfer Contract), and an Operating Agreement between
Reclamation and the District that took effect as part of the Settlement Stipulation.
Water Delivery Contracts and Subcontracts
Long-term CAP water service began pursuant to contracts and subcontracts on October 1, 1993, upon issuance by the
Secretary of notice of completion of the water supply system. The term of the contracts and subcontracts is generally 50
years beginning January 1, 1994, and the contracts and subcontracts are renewable.
Long-term subcontracts have been signed by M&I entities for approximately 87 percent of the total CAP M&I water allocation
of 638,823 acre-feet. All ten Indian entities originally allocated CAP water by the Secretary have signed long-term CAP contracts
for the CAP Indian water allocation of 309,828 acre-feet. An additional 355,396 acre-feet of CAP water has been or is
expected to be allocated to Indian entities or treated as Indian water supplies as a result of completed, pending or future
Indian water rights settlements. The remaining available CAP water was allocated to non-Indian agricultural entities.
The cities of Tucson, Phoenix, Mesa, Scottsdale, Peoria and Glendale account for approximately 66 percent of the CAP water
currently under M&I subcontracts.
The non-Indian subcontracts require the payment of a water service capital charge and an OM&R charge. For the M&I
subcontractors, the water service capital charge is applicable to each subcontractor's maximum annual entitlement to CAP
water. Under the current M&I water service subcontracts and current District pricing structure, the M&I water service capital
charge is an escalating charge, beginning at an annual rate of $10.50 per acre-foot of entitlement in 1994 and increasing
to $48 per acre-foot of entitlement by 1999. The M&I water service capital charge was $48 per acre-foot for 2000 and was
reduced to $43 per acre-foot for 2001. The amount of this M&I water service capital charge may be adjusted periodically
by the District as a result of repayment determinations provided for in the Master Repayment Agreement and to reflect all
sources of revenue, but the water service capital charge will not be greater than necessary to amortize project capital costs
allocated to the M&I function with interest. Indian contractors of CAP water pay no water service capital charge, since the
capital costs associated with the delivery of CAP water to Indian entities are not reimbursable by the District pursuant to the
Master Repayment Agreement.
The OM&R costs of the CAP are of two types: energy costs and fixed costs. Energy costs are incurred to pump water from
the Colorado River through the CAP aqueduct system and fixed costs are the non-energy costs associated with operation
and maintenance. The District is currently engaged in a cost of service study to better define what components properly
constitute fixed OM&R costs.
M&I subcontractors and Indian contractors must pay OM&R charges on water scheduled for delivery.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
MA S T E R R E PAYME N T A G R E EME N T C O N T I N U E D 4.
Amounts Recorded in Financial Statements
The repayment obligation and amounts due on that obligation reported in these financial statements reflect the terms of the
Stipulation. If the credit amounts identified in the Stipulation are refined as a result of audit, there could be additional revisions
to the amounts recorded in the financial statements. The District’s repayment obligation and the amounts due could be
adjusted in the future if the Repayment Litigation resumes.
Payments to Maturity
The required payments on the repayment obligation are the following:
Principal Interest Total
2001 $ 20,272 $ 37,055 $ 57,277
2002 20,272 36,365 56,637
2003 20,272 35,724 55,996
2004 21,450 35,083 56,533
2005 21,450 34,403 55,853
Thereafter 1,442,569 579,355 2,021,924
Total $ 1,546,285 $ 757,935 $ 2,304,220
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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O P E R AT I O N S C O N T I N U E D
As of December 31, 2000, nine existing and former subcontractors of agricultural CAP water had contracts with the District for
the delivery of CAP water for agricultural purposes on these conditions. The contracts are for a ten year term, but are subject to
(1) the availability of CAP water in each year after first providing for the delivery of water to contractors and subcontractors of
long-term water service, including existing M&I subcontractors, Indian contractors and agricultural subcontractors who retained
a percentage entitlement of CAP agricultural water under their CAP subcontracts, and (2) the determination by the District in
each year of the water service charges. In the Repayment Litigation, the United States disputed the validity of these contracts.
The Stipulation may require certain revisions to the form of these contracts, but otherwise confirms the District’s right to sell
CAP water under such alternative contracts. If the litigation resumes, the validity of these contracts will again be in issue.
In order to facilitate water planning, and subject to the assumptions contained in the Plan, the water service charges to be
charged M&I subcontractors and the United States on behalf of Indian contractors of CAP water service were confirmed in
2000 by the Board of Directors of the District for the period 2001 through 2005. The District's Board of Directors reviews
charges annually and sets a schedule for the succeeding five years. During 1997, the Board amended the Plan to provide for
a computation of the M&I water service charge by dividing the District’s estimated annual operating and energy costs by the
total estimated annual water delivery volume.
If the District is unable to deliver the quantities of water to non-Indian agricultural users assumed in the Plan, OM&R costs allocated
to M&I subcontractors and to the United States on behalf of Indian contractors could be significantly higher than anticipated.
M&I subcontractors use CAP water in their total water supply in various percentages and fund their payment of the District's
charges in a variety of ways. Therefore, it is difficult to estimate the effect of possible increases in the water service charges on
M&I subcontractors and on retail ratepayers, if applicable, including households in the service areas of CAP M&I subcontractors.
The District cannot predict the extent to which any negative reaction toward its water service charges would be mitigated by
considerations such as the essential nature of providing an assured long-term water supply and the availability (or lack thereof)
of alternative water sources at competitive costs.
A failure of the District to receive payment of water service charges necessary to pay CAP OM&R costs, coupled with an inability
of the District to mitigate the impact of such failure by other means, could have a material adverse effect on the District.
POWER
Navajo Power Plant
Reclamation is one of six participants in Navajo. Navajo consists of three 750,000 kilowatt coal-fired steam-electric generating
units which commenced operations in 1974 through 1976, a railroad to deliver fuel and 500 kilowatt transmission lines and
switching stations to deliver the power and energy to the various participants. An agreement among the participants governs
the construction, operation, and maintenance of Navajo. Reclamation entered into this agreement in order to acquire a portion
of the capacity of Navajo for supplying the power requirements of the CAP. Reclamation has a 24.3 percent entitlement in
the generating station, resulting in a power entitlement of 547,000 kilowatts of nominal capacity. The District is charged for
the costs associated with the energy used to operate the CAP.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
5.
O P E R AT I O N S C O N T I N U E D
The District anticipates that Indian entities, or the United States on behalf of the Indian entities, will pay Indian fixed OM&R
charges. Payment by the United States of Indian fixed OM&R charges would require annual appropriations by Congress or
specific net billing arrangements that do not currently exist. The United States has paid OM&R charges on water delivered to
the Ak-Chin Indian Community. Disputes that existed with respect to the amounts of those charges and the proper method
of calculating OM&R charges were conditionally resolved as part of the settlement Stipulation.
District Repayment Plan
An important assumption in the development of the CAP was that non-Indian agricultural water users would take and pay for
significant quantities of CAP water, particularly during the early years of project operation when M&I and Indian uses of CAP
water were expected to be relatively low. The Secretary's allocation of CAP water, the physical configuration of the water delivery
system, and the financial structure of the CAP were predicated upon such participation by non-Indian agricultural water users.
Long-term subcontracts for approximately 70 percent of the total non-Indian agricultural CAP water supply were signed. Two
irrigation districts represented approximately 38.5 percent of that total. The non-Indian agricultural CAP subcontracts have
been understood to require those subcontractors to pay fixed OM&R charges based on the full amount of CAP water available
for delivery to the subcontractor, not just the amount scheduled for delivery (the take-or-pay OM&R charges), plus energy
charges and a $2 per acre-foot water service capital charge for water scheduled for delivery. Many of the District's non-Indian
agricultural subcontractors indicated that the take-or-pay requirement and the cost of CAP water would result in substantial
reductions in CAP water use by the agricultural subcontractors and potential default by the subcontractors on their obligations
under the subcontracts. Under the Master Repayment Agreement, prior to its modification by the Stipulation, diminished use
of CAP water by non-Indian agricultural water users would also have increased the interest bearing portion of the District’s
repayment obligation and would have reduced the number of revenue sources available to meet the District's repayment
obligation and to pay the OM&R costs of the CAP. Furthermore, OM&R costs would be allocated among fewer users, which
would result in significantly higher per acre-foot charges to the remaining users.
As a result of these circumstances, the District's Board of Directors adopted a repayment adjustment plan in October 1993
(Plan). Under the Plan, each non-Indian agricultural subcontractor was provided the opportunity to waive its percentage
entitlement to CAP agricultural water under its CAP subcontract and avoid its corresponding obligation for take-or-pay
OM&R charges. As of December 31, 2000, all of the remaining non-Indian agricultural subcontractors had waived some or
all of their long-term entitlements to CAP agricultural water under their CAP subcontracts. The District in turn waived its
right to collect take-or-pay OM&R charges from such subcontractors.
Existing and former subcontractors of non-Indian agricultural CAP water were also given the opportunity by the District to enter
into alternative contracts for the delivery of CAP water on a short-term basis. Under the Plan, the pool of CAP water available for
delivery to non-Indian agricultural water users has been divided into various categories for purposes of determining water delivery
priority and water service charges. Water service charges are assessed only on the amount of CAP water scheduled for delivery.
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requirements exceed the threshold, the District must purchase additional energy either from Salt River Project or through other
energy sources. Under the contract, Salt River Project pays a monthly charge of $1,812,500 to the Development Fund. The District
records these revenues as funds held by the federal government as of December 31 of each year and then applies them against the
annual payment due from the District under the Master Repayment Agreement the following January 15. The extent to which such
revenues must be applied against the annual payments due from the District under the Master Repayment Agreement is among
the issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation (Note 3).
Hoover Surcharge
The Hoover Act also provided for the addition of a surcharge to the rates for energy sold from the Hoover and Parker-Davis
power plants of 4.5 mills per kilowatt-hour for energy sold in Arizona. Revenues from the surcharge on Hoover power sales
began in 1987 and revenues from Parker-Davis power sales will begin in 2005. Revenues from this surcharge are credited to
the Development Fund. The District records these revenues as funds held by the federal government as of December 31 of each
year and then applies them against the annual payment due from the District the following January 15. The extent to which such
revenues must be applied against the annual payments due from the District under the Master Repayment Agreement is among
the issues that were in dispute in the Repayment Litigation and were conditionally resolved in the Stipulation (Note 3).
I N V E S T M E N T S
As a multi-county water conservation district, the Arizona State Treasurer as prescribed by the District’s enabling act holds
the District’s investments. Beginning March 1, 2000, the District’s investments in the CAP pool were transferred to a shared
investment pool (Pool 3) in order to eliminate the need for a separate pool just for the District. Since the investment policy
objectives of the two pools are identical, the District does not anticipate any material impact on safety of principal, liquidity,
or return on investment. The investment policy objectives of the Arizona State Treasurer, in order of priority, are safety of
principal, liquidity, and return on investments.
Investments held by the CAP pool (as of December 31, 1999) and Pool 3 (as of December 31, 2000), which are categorized
for the District, consist of the following stated at fair value:
2000 1999
Federal Agency Securities $ 10,732 $ 37,700
Commercial Paper 32,716 31,341
Corporate Securities 165,891 140,172
209,339 209,213
Less restricted funds (repayment and operating reserves) (36,377) (31,615)
Less investment of state of Arizona — (4,121)
Investment of District $ 172,962 $ 173,477
The Board of Directors has designated $86,700,000 of the Pool 3 investments as capital projects and operating reserve
funds, and $2,000,000 as insurance reserves (see Note 11) at December 31, 2000.
( I n t h o u s a n d s )
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
6.
P O W E R C O N T I N U E D
Hoover B Power Purchases
The 1984 Hoover Power Plant Act (Hoover Act) authorized upgrading the Hoover power plant, located at Hoover Dam,
to increase generating capacity at the plant by 503 megawatts (MW). This additional capacity and its associated energy is
known as Hoover B Power. The Hoover Act allocated 188 MW and 212,000 megawatt hours (MWh) of associated firm
annual energy of the Hoover B Power to purchasers in Arizona. The Arizona Power Authority (Authority) distributes Arizona's
share of the Hoover B Power. On September 15, 1986, the District entered into a contract with the Arizona Power Authority
for the purchase of Hoover B Power. On October 1, 1992, the Authority recaptured all but 26.5 MW of Hoover B Power
from its other contractors and initiated delivery of available Hoover B Power to the District.
Power Revenues
Power revenues are derived from the sale of surplus power from Navajo (power associated with Reclamation's Navajo entitlement which
is in excess of the pumping requirements of the CAP) and from a surcharge on energy sold in Arizona from the Hoover power plant.
Additional Rate Component
The Hoover Act authorized the establishment and collection of additional rate components on sales and exchanges of the
capacity and energy associated with Reclamation's Navajo entitlement in excess of the pumping requirements of the CAP
and any needs for desalting and protective pumping facilities as may be required under the Colorado River Basin Salinity
Control Act (Navajo surplus). The Hoover Act further authorized the payment of revenues from such additional rate components
to entities that have advanced funds for the construction and repayment of construction costs of the CAP.
The Secretary determined that the excess capacity and energy, which constitutes Navajo surplus to be marketed pursuant to
long-term contracts, is 400,000 kilowatts of capacity and 760 kilowatt hours of energy per year per kilowatt of such capacity.
The District and Reclamation entered into power sales contracts with Salt River Project Agricultural Improvement and Power
District (Salt River Project) in 1990 and 1991 for the sale of an aggregate of 350,000 kilowatts of such capacity and the
associated energy from May 1993 through September 2011.
The additional rate component on the sale of such capacity has been established by the District at $6 per kilowatt of allocated
capacity per month. Revenues from the additional rate component are paid directly to the District's bond trustee to repay
the contract revenue bonds sold by the District (Note 10).
Sale of Remaining Navajo Surplus
In March 1994, the District entered into a contract with Salt River Project, Reclamation and the Department of Energy for the
sale of the remaining Navajo surplus. The contract, which is for the period June 1994 through September 2011, grants Salt
River Project the use of the remaining United States entitlement to output of the Navajo Generating Station, the right to
schedule and integrate with the Salt River Project system the District's contractual (rights to Hoover capacity and energy) and
to (energy produced at New Waddell Dam), and certain transmission rights, and requires Salt River Project to sell energy at
cost to the District to meet CAP pumping requirements up to a defined threshold level for each contract year. If CAP energy
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State Demonstration Projects
The Arizona Legislature passed the original State Demonstration Recharge legislation in 1990 that authorized the District to
levy an ad valorem tax of 4 cents per $100 assessed valuation in Maricopa and Pima counties. Tax revenues collected
through 1996 were deposited in the Arizona Water Storage Fund. Costs incurred by the District for planning and developing
State Demonstration Recharge projects continue to be reimbursed from this fund.
The District is developing multiple State Demonstration Recharge Projects pursuant to its responsibilities under the 1990
legislation. During 2000, three recharge projects were operational, two projects were in the planning and design phase and
two projects were undergoing feasibility study. State Demonstration Recharge Projects directly benefit the economy of the
state of Arizona by storing currently unused CAP water underground to provide an additional source of water supply for
future periods of shortage. Municipal water providers, the Central Arizona Groundwater Replenishment District and the
Arizona Water Banking Authority contract with the District to purchase and store water at the recharge projects.
Arizona Water Banking Authority
In April 1996, the State Demonstration Project statute was amended by the Arizona Legislature. The amended statute created
the Arizona Water Banking Authority (AWBA) for the purpose of increasing the utilization of Arizona’s allocation of Colorado
River water by delivering excess CAP water to various groundwater recharge projects through the CAP canal system. The
amended statute expanded the District’s ad valorem taxing authority to include Pinal County in addition to Maricopa and
Pima counties and created the Arizona Water Banking Fund. The amended statute directs the District to transfer revenues
derived from this tax to the Arizona Water Banking Fund to fund AWBA activities if the District’s Board of Directors approves
the levy and concludes that the revenues are not needed for CAP operations or CAP repayment. Pursuant to this authority,
the District levied an ad valorem tax of 4 cents per $100 assessed valuation in Maricopa, Pinal, and Pima counties in 1999
and 2000 and approved the transfer of these revenues to the Arizona Water Banking Fund (Note 1). During 2000 and 1999,
the District sold 293,576 and 251,943 acre-feet of excess CAP water to the AWBA at $44 and $43 per acre-foot, respectively,
for underground storage.
ADVA N C E S T O F E D E R A L G O V E R N M E N T
At December 31, 2000 and 1999, the District has incurred $5,930,000 and $5,022,000 in costs related to repairs of CAP
construction deficiencies which have been recorded in the accompanying financial statements as advances to the federal
government. The District applied these amounts against its annual payments due under the Master Repayment Agreement
on January 15, 2001 and 2000, respectively. On a cumulative basis, the District has incurred costs of $41,884,000 for the
correction of CAP construction deficiencies and applied this amount against its annual payments under the Master
Repayment Agreement. Under the Stipulation, credits available for application against the amounts due from the District
are subject to audit by the United States (see Note 3).
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
8.
R E S T R I C T E D A S S E T S
Restricted assets, including accrued interest receivable, consist of the following:
D E C E M B E R 3 1
2000 1999
Bond trust funds, primarily debt service funds $ 39,066 $ 37,008
State Demonstration Project fund 17,908 18,674
Master Repayment Agreement repayment and operating reserves 36,377 31,891
Ak-Chin fund 5,389 5,053
$ 98,740 $ 92,626
Bond trust funds held by the trustee may be invested in direct obligations of, or obligations guaranteed by the U.S. government,
FNMA or FHLMC securities, certificates of deposit, obligations of any state or political subdivision, or a guaranteed investment
contract, all subject to meeting certain ratings by national agencies, and maximum maturity limits. The trustee holds the
investments in trust for the District and the bondholders pursuant to the trust agreements.
Ak-Chin Fund
In August 1985, the District's Board of Directors approved participation in a fund established pursuant to legislation enacted
by the Congress of the United States for the acquisition or conservation of water to supplement CAP water supplies (Ak-Chin
fund). The District and the United States Government each have contributed $1,000,000 to this fund, which is administered
by the District. The District, acting as administrator of the fund, is empowered to direct the expenditure of the trust funds in
accordance with the provisions of a trust agreement between the District and the Arizona State Treasurer.
The Ak-Chin fund investment is in the LGIP, which invests primarily in certificates of deposit, commercial paper, federal
government and federal agency securities. Investments in the LGIP are recorded at cost as they consist of investments with
maturities of less than one year.
Repayment and Operating Reserves
The District is required under the terms of the Master Repayment Agreement to establish and fund over a ten-year period
(1) an operations and maintenance reserve fund of $4,000,000 for extraordinary costs of operations, maintenance and
replacement of project works, and (2) a repayment reserve fund of $40,000,000 for the purpose of assuring payments of
future obligations. Funding of the operations and maintenance reserve fund and repayment reserve fund commenced on
October 1, 1993 and July 1, 1993, respectively. At December 31, 2000, the fair value of the reserves totaled $3,321,000,
and $33,005,000, respectively, including interest.
7.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
( I n t h o u s a n d s )
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B O N D S PAYA B L E
Bonds payable consist of the following:
D E C E M B E R 3 1
2000 1999
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series A 1990 (1990 Bonds) (original maturity amount of
$71,895,000, excluding 1990 Bonds which have been refunded), due in
varying annual amounts through 2011; interest rates vary among individual
maturities ranging from 6.90 percent to 7.40 percent
Serial $ 9,985 $ 14,215
Special term 8,305 11,244
Capital appreciation (maturity value of $11,760,000) 7,230 6,733
25,520 32,192
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Bonds, Series B 1991 (1991 Bonds) (original maturity amount of
$80,045,000, excluding 1991 Bonds which have been refunded), due in
varying amounts through 2011; interest rates vary among individual
maturities ranging from 5.80 percent to 6.80 percent
Serial 20,701 26,793
Term 109 109
Capital appreciation (maturity value of $23,095,000) 17,072 15,979
37,882 42,881
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series A 1993 (1993 Bonds) (original maturity
amount of $106,535,000), due in varying annual amounts through 2010; interest
rates vary among individual maturities ranging from 4.05 percent to 5.50 percent 92,327 94,096
Central Arizona Water Conservation District (Central Arizona Project) Contract
Revenue Refunding Bonds, Series B 1994 (1994 Bonds) (original maturity
amount of $53,430,000), due in varying amounts through 2009; interest rates
vary among individual maturities ranging from 3.50 percent to 4.75 percent
Serial 32,408 33,859
Subordinate serial 5,812 6,347
Deferred loss on refunding (4,126) (4,678)
34,094 35,528
189,818 204,697
Less current portion (18,050) (17,250)
$ 171,768 $ 187,447
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
10.
( I n t h o u s a n d s )
UNDERGROUND WAT E R S T O R A G E A N D R E C O V E RY
In 1992, the District entered into an agreement with the Metropolitan Water District of Southern California (MWD) and
subsequently with Southern Nevada Water Authority (SNWA), whereby up to an aggregate of 100,000 acre-feet of interstate
underground water storage credits would be set aside for potential assignment to MWD and SNWA if the Secretary declares
a surplus of Colorado River water. Once assigned, MWD and SNWA can recover these credits in years in which the Secretary
has declared a normal supply of Colorado River water. The water will be delivered through exchange of the interstate underground
water storage credits back to the District for diversion of water from the Colorado River by MWD and SNWA. The District
must reduce its maximum level of diversions from the Colorado River equal to the amount diverted by MWD and SNWA.
In 1995, an amendatory agreement was executed between the District and MWD increasing the amount of water that can
be stored from 100,000 acre-feet to 300,000 acre-feet of water and the time for placing the water into storage from
December 31, 1996 to December 31, 2000. As of December 31, 1995, the District had received $11,386,000 related to
139,000 acre-feet that was recorded as a reduction in the costs capitalized in connection with the underground water storage
projects. As of December 31, 1998, all of the 139,000 acre-feet of underground storage credits were assigned to MWD
(89,000 acre-feet) or SNWA (50,000 acre-feet). MWD and SNWA can recover these credits in future years in which the
Secretary declares a normal supply of Colorado River water. When this occurs, the District would reduce its diversions from
the Lower Colorado River by the amount of credits being recovered and execute a plan to recover and deliver an equal volume
of stored credits in lieu of Colorado River water that would have been pumped.
On November 1, 1999, the Secretary of the Interior adopted a final rule entitled Offstream Storage of Colorado River Water
and Development of Intentionally Created Unused Apportionment in the Lower Division States. These regulations became
effective on December 1, 1999, and authorized the AWBA to engage in interstate banking of Colorado River water in cooperation
with other states of the Lower Division. An agreement is being developed which allows the District to intentionally create
unused apportionment for the specific purpose of facilitating interstate banking of Colorado River water in Arizona by Nevada
and California. Interstate banking agreements are also being developed with these states.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
9.
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B O N D S PAYA B L E C O N T I N U E D
Debt service requirements to maturity, which include the sinking fund requirement and interest of $49,556,000 are as follows:
Years ending 2001: $27,374,000; 2002: $27,321,000; 2003: $27,321,000; 2004: $27,321,000; 2005-2006: $54,642,000;
2007-2011: $91,411,000.
In April 1993 and February 1994, the District refinanced through advanced refunding arrangements approximately
$89,545,000 and $44,525,000 of outstanding 1990 bonds and 1991 bonds, respectively. The net proceeds were used to
purchase U.S. Government securities. Those securities were deposited in an irrevocable trust to provide for all future debt
service payments on the refunded 1990 Bonds and 1991 Bonds. As a result, the refunded 1990 Bonds and 1991 Bonds are
considered to be defeased and the liability for those bonds of $134,070,000 at December 31, 2000 has been removed from
the balance sheet.
The District has deferred the accounting loss of $8,109,000 related to the 1991 bonds. The accounting loss is amortized to
income on the interest method over the life of the new bonds.
C O M M I T M E N T S A N D C O N T I N G E N C I E S
Insurance Reserve
The District's Board of Directors has designated $2,000,000 of noncurrent unrestricted investments to act as a reserve for
property and liability damages to be available to respond to any claims, judgments, and related costs against the District, its
officers, directors, and employees, if any, in excess of the outstanding insurance coverage.
Litigation
The District is a party to certain litigation and other proceedings that could have the effect of increasing the District’s costs or
reducing or eliminating certain sources of revenues available to the District to meet those costs. The most significant of these
is the Repayment Litigation with the United States, in the event that the conditions to the Stipulation are not satisfied, or if
the Stipulation terminates and litigation resumes for any other reason (Note 3).
P E N S I O N P L A N S
Retirement benefits are provided to District employees through two separate plans as of December 31, 2000. Benefits were
provided for service prior to July 1, 1998, through the Central Arizona Water Conservation District Retirement Plan (the
District Plan) and from July 1, 1998 through December 31, 2000, through the Arizona State Retirement System. Employees
retired or terminated prior to July 1, 1998, or their beneficiaries, continue to be provided benefits through the Central
Arizona Water Conservation District Retirement Plan.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
11.
B O N D S PAYA B L E C O N T I N U E D
Changes in bonds payable during the year ended December 31, 2000, are summarized below:
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
BALANCE BALANCE AMOUNTS DUE
DECEMBER 31 ACCRETION AND DECEMBER 31 WITHIN ONE
1999 REDEMPTION AMORTIZATION 2000 YEAR
1990 Bonds
Serial $ 14,215 $ 4,230 $ — $ 9,985 $ 7,710
Special term 11,244 3,000 61 8,305 —
Capital appreciation 6,733 — 497 7,230 —
1991 Bonds
Serial 26,793 6,110 18 20,701 6,490
Term 109 — — 109 —
Capital appreciation 15,979 — 1,093 17,072 —
1993 Bonds 94,096 1,845 76 92,327 1,750
1994 Bonds
Serial 33,859 1,525 69 32,403 1,595
Subordinate serial 6,347 540 5 5,812 505
Deferred loss (4,678) — 552 (4,126) —
$ 204,697 $ 17,250 $ 2,371 $ 189,818 $ 18,050
The 1990 Bonds and 1993 Bonds are secured by a pledge of revenues, and related interest thereon, from the additional rate
component charged by the District to the Salt River Project on the sale of 200 MW of allocated capacity of surplus power
associated with Reclamation's 24.3 percent entitlement in Navajo. The 1991 Bonds and 1994 Bonds are secured by a similar
pledge of revenues from the additional rate component charged Salt River Project on the sale of an additional 150 MW of
allocated Navajo capacity (Note 5).
The 1990 and 1991 Capital Appreciation Bonds and 1993 Bonds are noncallable. The remaining 1990 and 1991 bonds are
subject to optional redemption commencing in 2000 at a price of 102 percent with a declining price to par in 2003, except
for $2,500,000 of the special term bonds due in 2011, which are redeemable at par after 2000. The 1994 Bonds are subject
to optional redemption commencing in 2004 at a price of 102 percent with a declining price to par in 2006.
The 1990 Special Term Bonds aggregating $2,500,000 and the 1991 Term Bonds are subject to sinking fund requirements
and mandatory redemption equal to the amount of any unsatisfied portion of the sinking fund requirement.
( I n t h o u s a n d s )
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12.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
P E N S I O N P L A N S C O N T I N U E D 12.
Central Arizona Water Conservation District Retirement Plan
The District maintains the Central Arizona Water Conservation District Retirement Plan, a single-employer defined benefit
pension plan covering substantially all of its employees who retired or terminated prior to July 1, 1998.
The District's Board of Directors amended the District Plan on May 7, 1998, providing certain changes in benefits. The
amendment provides that active employees as of June 30, 1998, are eligible to participate in the District Plan as of their date
of employment. No credited service is earned or credited for any period of employment after July 7, 1998. Upon normal
retirement date, participants are entitled to a retirement income equal to 2 percent of their average monthly compensation
multiplied by years of service. Average monthly compensation is the average of monthly compensation during the 36 con-secutive-
month period within the last 120-month period of service that yields the highest average. The change in the present
value of accumulated benefits as a result of these amendments totaled $5,014,114 at December 31, 1998. There were no
amendments in 1999 or 2000.
All active employees of the District Plan were given the option to transfer their accounts from the District Plan to the Arizona
State Retirement System Plan as of July 1, 1998. All active employees elected to transfer their accounts to the Arizona State
Retirement System Plan. Accordingly, funds in the amount of $18,581,000 were transferred from the District Plan to the
Arizona State Retirement System Plan in February 1999.
The District Plan also offers certain early retirement options and death benefits. These benefit provisions and all other requirements
are established by the District’s Board of Directors. The District Plan does not issue a stand-alone financial report.
As of December 31, 2000, there were 97 participants in the District Plan. There were 19 retirees and beneficiaries receiving
benefits and 53 terminated members and beneficiaries entitled to, but not yet receiving benefits.
The net pension benefit obligation and annual pension cost were computed as part of an actuarial valuation performed as of
January 1, 2000, the beginning of the District Plan’s year. The District Plan’s pension liability was determined in accordance
with the provisions of Governmental Accounting Standards Board Statement No. 27. Significant actuarial assumptions used
in the valuation include a rate of return on the investment of present and future assets of 6.5 percent a year compounded
annually, and projected salary increases of 4.0 percent a year compounded annually. In previous years, the District’s liability
was calculated as of the end of each plan year. Beginning in 1999, the liability is calculated looking forward at the beginning
of each plan year.
The District's funding policy provides for an actuarially determined contribution within the range of contributions as specified
under the Internal Revenue Code. The contribution for normal cost is determined using the entry-age normal cost method.
The District uses the level percentage of payroll method to amortize the unfunded liability. Beginning in 1998, the District
elected to change the amortization period for the unfunded liability from 30 to 15 years.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as
those used to compute the pension benefit obligation. Contributions to the District Plan for the years ended December 31, 2000
and 1999, were approximately $64,000 and $72,000, respectively, each of which was made in accordance with actuarially
determined requirements. The District records the actuarially determined contributions for the Plan year as an expense in
the corresponding year.
P E N S I O N P L A N S C O N T I N U E D
The annual pension cost and net pension obligation for 2000 are as follows:
Annual required contribution for 2000 $ 63,978
Adjustment to annual required contribution 559
Annual pension cost 64,537
Contributions made for 2000 (63,978)
Increase in net pension obligation 559
Net pension obligation, beginning of year (12,643)
Net pension obligation, end of year $ (12,084)
December 31, 1997 $ 1,720,578 $ 1,718,833 99.9% $ (13,633)
December 31, 1998 629,941 629,466 99.9 (13,158)
December 31, 1999 72,564 72,049 99.3 (12,643)
December 31, 2000 64,537 63,978 99.1 (12,084)
December 31, 1997 $ 16,322,894 $ 17,951,007 $ 1,628,113 90.93% $ 18,221,264 8.94
December 31, 1998 20,407,198 26,710,573 6,303,375 76.40 19,846,370 31.76
January 1, 1999 21,036,664 21,686,104 649,440 97.01 19,470,069 3.34
January 1, 2000 2,687,777 3,237,970 550,193 83.01 221,649* 248.23*
Trend information for the District Plan years ended December 31, 1997 through 2000 is as follows:
PERCENTAGE OF
ANNUAL PENSION
ANNUAL AMOUNT COST NET PENSION
YEAR ENDING PENSION COST CONTRIBUTED CONTRIBUTED OBLIGATION
The actuarial value of the District Plan assets and actuarial accrued liabilities for plan years ended December 31, 1997
through 2000 are as follows:
ACTUARIAL VALUE UNFUNDED
OF ASSETS AS ACTUARIAL ACCRUED
UNFUNDED PERCENTAGE OF LIABILITY AS
ACTUARIAL ACTUARIAL ACTUARIAL ANNUAL PERCENTAGE OF
VALUATION ACTUARIAL VALUE ACCRUED ACCRUED ACCRUED COVERED ANNUAL COVERED
DATE OF ASSETS LIABILITY LIABILITY LIABILITY PAYROLL PAYROLL
%
* During 1999, all but 4 active participants elected to forfeit all benefits under this plan in exchange for receiving credited service in the Arizona State
Retirement System for service accrued through June 1998 in this plan. The majority of remaining liabilities under this plan is for inactive participants.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
P E N S I O N P L A N S C O N T I N U E D
The actuarial value of assets represents the market value as determined by the District Plan trustee. Investments with the
Federal Home Loan Mortgage Corporation exceed 5 percent of total investments.
Arizona State Retirement System Plan
Effective July 1, 1998, the District became a member of the Arizona State Retirement System (ASRS), a cost-sharing, multi-ple-
employer, public employee retirement system established by the State of Arizona to provide benefits for employees of the
State and participating political subdivisions and school districts. The ASRS Board administers the Arizona State Retirement
System Plan (ASRS Plan), which is a defined benefit pension plan. The ASRS Plan provides for retirement, disability, health
insurance premium benefits, and death and survivor benefits as established by State statute. Substantially all employees of
the District are covered by the ASRS Plan.
The ASRS Plan issues a Comprehensive Annual Financial Report, including financial statements and supplemental information,
which may be obtained by writing to Arizona State Retirement System, 3300 North Central Avenue, P.O. Box 33910, Phoenix
Arizona 85067-3910 or by calling (602) 240-2000 or 1-800-621-3778.
The Arizona Revised Statutes provide statutory authority for determining the employees’ and employers’ contribution amounts
as a percentage of covered payroll. Employers are required to contribute at the same rate as employees. The employee and
employer contribution rates for the ASRS Plan year ending June 30, 1999 were set at 3.34 percent, and for the Plan years
ending June 30, 2000 and June 30, 2001, were set at 2.66 percent of covered wages as determined by an actuarial computation
based on June 30, 1998 information. Contributions for 2000, 1999, and 1998, were $1,252,933, $1,411,536, and $695,054,
respectively, for both employees and the District. The District pays both the employee and employer portions of the contribution.
Post Employment Benefit Plan
The District provides post employment health care benefits to employees who are eligible for monthly retirement benefits
under the pension plan and who have received coverage under the District’s group medical plan for at least five years preceding
retirement. Coverage is also available to the employee’s legal spouse provided that certain conditions are met and to other
dependents as required by law. This post employment benefit plan is funded on a pay-as-you-go basis and there are currently
11 employees eligible to receive benefits. The current annual cost is $19,800 per year. Based on life expectancies, the District
recorded an expense and a liability of $313,000 during 2000.
D E F E R R E D C O M P E N S AT I O N A N D S AV I N G S P L A N
The District has adopted and maintains the Central Arizona Water Conservation District Savings Plan (Savings Plan) in
accordance with Section 401(k) of the Internal Revenue Code. The Savings Plan was amended by the District Board of
Directors on May 6, 1999 to provide that all active, nonunion employees are eligible to participate as of their date of
employment. The Savings Plan was further amended on December 7, 2000 to clarify that certain temporary and part-time
employees do not participate.
13.
N O T E S T O F I N A N C I A L S TAT E M E N T S C O N T I N U E D
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D E F E R R E D C O M P E N S AT I O N A N D S AV I N G S P L A N C O N T I N U E D
Eligible employees are allowed to contribute up to 16 percent of their biweekly compensation, and the District has agreed to
contribute to an employee’s account an amount equal to one-half of the amount contributed by the employee up to three
percent of the employee’s biweekly compensation. Contribution expense for the Savings Plan for the years ended December
31, 2000 and 1999 was approximately $629,000 and $598,000, respectively (2.7 percent of payroll expense for each plan
year). Accrued benefits attributable to the District’s contributions on behalf of participants vest 20 percent for each year of
completed service.
The District’s payroll expense for employees covered under the Savings Plan was $23,501,000 and $22,151,000 for the plan
years ended December 31, 2000 and 1999, respectively.
O M & R C O S T R E C O N C I L I AT I O N
In accordance with CAP M&I and agricultural subcontracts, the District annually estimates its OM&R costs for the following
year and uses that estimate along with projected water deliveries to establish water service OM&R charges for that following
year. The subcontracts also provide that the District will determine whether its actual OM&R costs for each year differed from
the estimated OM&R costs that were used to establish water charges for that year, and the District will make adjustments in
the following year’s charges to account for any difference identified.
The District has determined that the annual OM&R cost reconciliations should include a reconciliation of both fixed OM&R
and pumping energy costs for each year to charges for each year previously established based on estimates.
The Stipulation specifies that actual OM&R costs allocable to Federal customers are to be reconciled on a basis consistent
with the methodology used in each applicable year to assess charges. Reconciliations through 1999 were communicated in
January 2001, and customers were given a choice between receiving a credit or a refund. Beginning with 2000, annual costs
are to be calculated and refunded, surcharged or offset, as the case may be, by May 30 of the following year.
The District recorded a provision at December 31, 1999 for its estimated OM&R reconciliation obligation through 1999 in the
total amount of $18 million. Subsequently, the District completed its analysis of OM&R costs through December 31, 2000
and determined that the actual OM&R obligation through 1999 was $15.6 million and for 2000 the obligation is $707,500.
Consequently, the District recorded a revenue item in 2000 in the amount of $1.7 million corresponding to the reduction in
its OM&R reconciliation liability.
14.
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
FINANCIAL HIGHLIGHTS
• Water deliveries for 2000 totaled 1.540 million acre-feet, an increase of 23% over 1999 deliveries. Deliveries for
2000 set a new record, exceeding the previous record of 1.365 million acre-feet set in 1997.
• Total net assets increased by 11% to $155 million in 2000. In 1999, total net assets decreased by 11% to
$140 million, primarily due to a provision of $18 million to refund amounts charged to customers in excess
of actual 1993-1999 operations, maintenance and replacement (OM&R) costs.
• Total expenses for 2000 declined by 1% to $173 million (excluding the OM&R provision for 1993-1998 in the
amount of $16 million from the comparison). The reduction was due primarily to lower interest and amortization
expense as a result of the District's repayment settlement, partially offset by higher power expenses related to
higher water deliveries. Total revenues for 2000 increased by 8% to $189 million, due to increased water deliveries
and interest income as a result of the settlement.
• Operating income for 2000 increased by 19% to approximately $21 million (excluding the OM&R provision
for 1993-1998 from the comparison).
• Unrestricted cash and investments for 2000 decreased by 2% to $179 million. During 1999, unrestricted cash
and investments declined by 9%.
USING THE FINANCIAL STATEMENTS
As a business-type activity, the District’s annual financial reporting includes the basic financial statements and accompanying notes
for enterprise funds. The District reports on a calendar year basis. All financial statements are presented on a comparative basis
for 2000 and 1999. The statements of net assets summarize the District’s current and long-term obligations (liabilities) and the
assets available to meet those obligations. The difference between total assets and total liabilities represents the District’s net
assets. The statements of revenues, expenses and changes in fund net assets summarize the District’s operating and non-operating
expenses for the year and the revenues that were available to cover those expenses, as well as changes in net assets. The state-ments
of cash flows summarize the District’s uses of cash during the year and the sources of cash available to finance those uses.
The statements of cash flows, as cash based statements, include reconciliations to the statements of revenues, expenses and
changes in fund net assets, which are prepared on an accrual basis. Consolidating schedules of net assets and statements of rev-enues,
expenses and changes in fund net assets, which provide more detailed information on the District’s designated financial
activities, are included after the notes to the financial statements.
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THE DISTRICT’S FINANCIAL ACTIVITIES
The District accounts for its financial activities in conformity with generally accepted accounting principles as applicable to a
government “enterprise fund.” This accounting treatment applies because the District’s activities are primarily business-like in
nature. Under enterprise fund accounting, the District is a single accounting entity for financial reporting purposes. However,
within this single accounting entity the District has identified a number of financial activities that it wishes to track separately,
referred to as "funds," which are actually separate accounts. These funds are as follows: General Fund, CAGRD Fund, State
Demonstration Project Fund, Ak-Chin Fund and several Bond Funds. The use of the term "fund" for these separate activities
does not have any particular accounting significance. The District is not required to and does not publish separate financial
statements for any of the individual funds, except for the consolidating schedules referenced above.
The General Fund represents the District’s primary activity, the delivery of Colorado River water to central Arizona through
the Central Arizona Project (CAP) and is, by an order of magnitude, the largest fund within the District. The CAGRD Fund
represents the activities of the Central Arizona Groundwater Replenishment District. The State Demonstration Project Fund
represents the activities related to the construction of State Demonstration underground water recharge projects. The Ak-
Chin Fund represents the activities related to a trust fund established to acquire or conserve water to supplement Colorado
River supplies. The Bond Funds represent the activities related to several revenue bond series issued by the District. Please
refer to the notes to the financial statements for additional information on these funds.
THE DISTRICT AS A WHOLE
The District’s total assets as of December 31, 2000 were approximately $2.0 billion. Current assets, including cash, inventory
and receivables, were approximately $65 million, including a $36 million credit for overpayments in prior years arising from
the repayment settlement. The largest component of the District’s long-term assets was the permanent service right, net of
accumulated amortization, in the amount of $1.59 billion. The permanent service right is the asset representing the District’s
right to operate the CAP system and collect revenues from operations, for which the District has incurred a repayment obli-gation
to the United States. Other asset categories include restricted and unrestricted reserves and investments, funds held
by or advanced to the Federal government and property and equipment.
While property and equipment assets grow annually as a result of ongoing capital projects, such additions are more than off-set
by amortization of the permanent service right, which is approximately $31 million per year. As a result, total assets tend
to decrease each year.
CENTRAL ARIZONA WATER CONSERVATION DISTRICT
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2000
The following is management’s discussion and analysis of the 2000 financial performance of the Central Arizona Water
Conservation District (the District). It provides an overview of the District’s financial activities and financial condition for the
year and should be read in conjunction with the District’s financial statements and accompanying notes.
p 48 p 49
( I n $ M i l l i o n s )
S TATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
All Funds
2000 1999
Operating revenues $ 144.0 $ 137.7
Operating expenses (123.4) (120.4)
Operating income before
unusual expense item 20.6 17.3
Unusual item –
OM&R reconciliation — (16.0)
Operating income after unusual expense item 20.6 1.3
Non-operating revenues 44.7 37.1
Non-operating expenses (49.9) (54.8)
Total non-operating revenues (expenses) (5.2) (17.7)
Change in net assets $ 15.4 $ (16.4)
Operating revenues for 2000 grew by 5% over 1999, primarily due to increased water deliveries. Operating expenses for
1999 grew by 2% over 1999, primarily due to increased power purchases associated with increased water deliveries. Total
operating income for 2000 (before an unusual expense item) grew by 19% over 1999. In 1999, an unusual expense item of
$16 million was recognized for reconciliation of actual 1993-1998 OM&R costs to amounts charged to customers. Estimated
OM&R reconciliation costs for 1999 of $2 million were included in 1999 operating expenses.
Non-operating revenues for 2000 increased by 18% over 1999, primarily because of increased interest earned on the repay-ment
credit arising from the repayment settlement. Non-operating expenses for 2000 decreased by 10% from 1999 due to
the decrease in the District’s repayment obligation as a result of the repayment settlement. In the near term, under current
rate setting practices and assuming constant reserve levels, the District’s consolidated change in net assets can generally be
expected to be positive. However, because rates are set in advance and water deliveries fluctuate based on weather condi-tions
and other factors, actual results may vary. Please see the discussions under "General Fund," "State Demonstration
Projects" and "Bond Funds" below for additional information.
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K CAP C ENT RAL AR I ZONA WAT E R CONS E RVAT ION DI S T R I C T 2 0 0 0 A N N U A L R E P O R T 2K
MANAGEMENT’S DISCUSSION AND ANALYSIS C O N T I N U E D
p 50 p 51
N E T A S S E T S
All Funds
( $ M i l l i o n s )
2000 1999
Cash and Investments $ 277 $ 276
Receivables 40 37
Permanent service right, net 1,586 1,761
Property and equipment, net 23 16
Repayment Credit 36 —
Inventory and other assets 18 13
Total assets $ 1,980 $ 2,103
Repayment obligation 1,546 1,665
Revenue bonds 190 205
OM+R reconciliation provision 16 18
Deferred revenue 16 16
Other liabilities 57 59
Total liabilities 1,825 1,963
Net Assets:
Invested in capital assets, less than related debt (125) (91)
Restricted 96 92
Unrestricted 184 139
Total net assets 155 140
Total liabilities and net assets $ 1,980 $ 2,103
( I n $ M i l l i o n s )
The District’s total liabilities as of December 31, 2000 were approximately $1.8 billion. Current liabilities, including payables,
accrued interest, current principal obligations and the OM&R refund, were approximately $111 million. The largest compo-nent
of the District’s liabilities was the Federal repayment obligation in the amount of $1.55 billion. Other liability categories
include revenue bonds and deferred revenue.
Total liabilities will generally decrease each year as the repayment obligation and revenue bonds are paid off. Deferred rev-enue
consists of water delivery and capital charges collected in advance. Total fund net assets are generally expected to
increase because the annual Federal repayment obligation and bond principal payments exceed amortization of the perma-nent
service right. However, net assets will also fluctuate as a result of changes in